FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Cayman Islands | 98-0377871 | |
(State or
incorporation or | (I.R.S. Employer Identification No.) |
P.O. Box 309GT Ugland House, South Church Street Grand Cayman, Cayman Islands |
KY1-1106 | |
(Address of | (Zip Code) |
Title of | Trading Symbol(s): | Name of | ||
Common Shares, par value | HLF | New York Stock Exchange |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229,405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Large accelerated filer |
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Non-accelerated filer |
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Emerging growth company |
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PART I | |||||||
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Item | 5 | ||||||
Item 1A. | Risk Factors | 19 | |||||
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Item 2. |
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Item 3. |
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Item 4. |
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PART II | |||||||
Item 5. |
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Item 6. |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 8. |
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Item 9. | Changes |
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PART III | |||||||
Item 10. |
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Item 11. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. | Certain Relationships and Related Transactions, and Director Independence |
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Item 14. |
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PART IV | |||||||
Item 15. |
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Item 16. |
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legal challenges to, our products or network marketing program;
uncertainties relating to interpretation and enforcement of legislation in China governing direct selling and anti-pyramiding;
our inability to obtain the necessary licenses to expand our direct selling business in China;
adverse changes in the Chinese economy;
our dependence on increased penetration of existing markets;
3
U.S. and foreign laws and regulations applicable to our international operations;
uncertainties relating to the United Kingdom’s vote to exit from the European Union;
restrictions imposed by covenants in the agreements governing our credit facility;
changes in tax laws, treaties, orand regulations, or their interpretation;
taxation relating to our Members;
product liability claims;
our incorporation under the laws of the Cayman Islands;
andwhether we will purchase any of our shares in the open markets or otherwise; and
share price volatility related to, among other things, speculative trading and certain traders shorting our common shares.
Item 1. | Business |
We
We believe that direct selling is ideally suited to marketing our nutrition products because sales of weight management, targeted nutrition, energy, sports & fitness, and outer nutrition products are strengthened by the personal contact, support, coaching, education,active lifestyle, living healthier, and the understanding communityrise of like-minded people that our entrepreneurialentrepreneurship.
PRODUCT OVERVIEW
For 38 years, our science-baseduse high-quality and science-backed products have helpedto help other Members and their customers from around the world lose weight, maintainmanage their weight, improve their overall health, enhance their fitness and sport goals, and experience life-changing results. As of December 31, 2017, for the product categories weight management, targeted nutrition, energy, sports & fitness, and outer nutrition,2020 we marketed and sold approximately 120 products encompassing over 4,700 SKUs globally.product types. Our products are often sold as part of a program and therefore our portfolio is comprised of a series of related products designed to simplify weight management and nutrition for our Members and their customers. We categorize our products into five groups: weight management, targeted nutrition, energy, sports & fitness, outer nutrition, and literature, promotional and other. For 2017, 2016, and 2015, ourOur Formula 1 Healthy Meal,Nutritional Shake Mix, our best-selling product line, approximated 30%28% of our net sales.
sales for the year ended December 31, 2020.
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Weight Management |
| 64.2% |
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| 63.8% |
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| 64.1% |
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| Meal replacement, protein shakes, drink mixes, weight loss enhancers and healthy snacks |
| Formula 1 Healthy Meal, Herbal Tea Concentrate, Protein Drink Mix, Personalized Protein Powder, Total Control®, Formula 2 Multivitamin Complex, Prolessa™ Duo, and Protein Bars | |||
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Targeted Nutrition |
| 24.5% |
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| 23.6% |
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| 22.7% |
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| Dietary and nutritional supplements containing quality herbs, vitamins, minerals and other natural ingredients |
| Herbal Aloe Concentrate, Active Fiber Complex, Niteworks®, and Herbalifeline® | |||
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Energy, Sports & Fitness |
| 6.0% |
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| 6.1% |
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| 5.6% |
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| Products that support a healthy active lifestyle |
| Herbalife24® product line, N-R-G Tea, and Liftoff® energy drink | |||
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Outer Nutrition |
| 2.1% |
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| 2.4% |
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| 3.0% |
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| Facial skin care, body care, and hair care |
| Herbalife SKIN line and Herbal Aloe Bath and Body Care line | |||
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Literature, Promotional and Other |
| 3.2% |
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| 4.1% |
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| 4.6% |
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| Start-up kits, sales tools, and educational materials |
| Herbalife Member Packs and BizWorks | |||
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Percentage of Net Sales | ||||||||||||||||
2020 | 2019 | 2018 | Description | Representative Products | ||||||||||||
Weight Management | 59.8 | % | 61.8 | % | 63.5 | % | Meal replacement, protein shakes, drink mixes, weight loss enhancers and healthy snacks | Formula 1 Healthy Meal, Herbal Tea Concentrate, Protein Drink Mix, Personalized Protein Powder, Total Control ® Prolessa ™ Duo | ||||||||
Targeted Nutrition | 27.6 | % | 26.2 | % | 25.4 | % | Functional beverages and dietary and nutritional supplements containing quality herbs, vitamins, minerals and other natural ingredients | Herbal Aloe Concentrate, Active Fiber Complex, Niteworks ® Herbalifeline ® | ||||||||
Energy, Sports, and Fitness | 7.9 | % | 7.2 | % | 6.3 | % | Products that support a healthy active lifestyle | Herbalife24 ® N-R-G Liftoff ® | ||||||||
Outer Nutrition | 2.0 | % | 2.0 | % | 1.9 | % | Facial skin care, body care, and hair care | Herbalife SKIN Herbal Aloe Bath and Body Care | ||||||||
Literature, Promotional, and Other | 2.7 | % | 2.8 | % | 2.9 | % | Start-up kits, sales tools, and educational materials | Herbalife Member Packs and Biz Works |
Marketing foodsMembers on the basisprinciples of sound science means using ingredients that have been well studiednutrition, physical activity, diet, and discussed in backgroundhealthy lifestyle. We rely on the scientific literature. Use of these ingredients for their well-established purposes is by definition not novel, and for that reason, most food uses of these ingredients are not subject to patent protection. Notwithstanding the absence of patent protection, we do own proprietary formulations for substantially allcontributions from members of our weight managementNutrition Advisory Board and our
We use the umbrella trademarks Herbalife® and the Tri-Leaf design worldwide, and protect several other trademarks and trade names related to our products and operations, such as Niteworks® and Liftoff®. Our trademark registrations are issued through the United States Patent and Trademark Office, or USPTO, and comparable agencies in the foreign countries. As of December 31, 2017, we had over 1,900 trademark registrations worldwide. We consider our trademarks and trade names to be an important factor in our business.
GEOGRAPHIC PRESENCE
As of December 31, 2017, we conducted business in 94 countries throughout the world. The top ten countries worldwide represented approximately 71.8%, 72.9%, and 74.3% of our net sales in 2017, 2016, and 2015, respectively. In the countries where we conduct business, we typically maintain a physical presence and provide sales, marketing, call center, logistics and distribution services. Globally our products can be accessed at over 1,600 locations. We distribute our products through our distribution and sales centers and certain retail partners.
Our operating segments are based on geographical operations in six regions: North America, Mexico, South & Central America, EMEA (Europe, Middle East and Africa), Asia Pacific and China. The following table shows net sales by geographic region.
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| Total Net Sales 2017 |
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| December 31, 2017 |
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North America |
| $ | 840.2 |
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| $ | 955.7 |
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| $ | 879.5 |
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| 19.0 | % |
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| 5 |
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Mexico |
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| 442.7 |
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| 446.6 |
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| 479.9 |
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| 10.0 | % |
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| 1 |
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South & Central America |
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| 474.3 |
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| 488.7 |
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| 569.7 |
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| 10.7 | % |
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| 17 |
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EMEA |
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| 868.7 |
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| 815.6 |
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| 755.1 |
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| 19.6 | % |
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| 55 |
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Asia Pacific |
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| 915.9 |
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| 913.0 |
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| 938.6 |
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| 20.7 | % |
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| 15 |
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China |
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| 885.9 |
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| 868.8 |
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| 846.2 |
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| 20.0 | % |
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Worldwide |
| $ | 4,427.7 |
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| $ | 4,488.4 |
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| $ | 4,469.0 |
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| 100.0 | % |
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| 94 |
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For financial data by segment see Note 10, Segment Information, to the Consolidated Financial Statements.
MANUFACTURING, WAREHOUSING AND DISTRIBUTION
Our objective is to provide the highest quality products to our Members and their customers. We seek to accomplish this goal through execution of our “seed to feed” strategy that includes significant investments in quality assurance, scientific personnel, product testing, and increasing the amount of self-manufacturing of our top products. Our seed to feed strategy is rooted in using quality ingredients from traceable sources coupled with the vertical manufacturing of our most popular products. For our botanical products, our seed to feed strategy also includes self-manufacturing some of our teas and herbal ingredients. Our procurement activities for many botanicals now stretch back to the farms and include the complete self-processing of teas and botanicals into finished raw materials.
The foundation for high quality products is the quality of the ingredients. Ingredients are sourced from companies that are large and reputable suppliers in their respective field. For example, soy, our number one ingredient, is sourced from DuPont and ADM. Our vitamins, minerals and other key ingredients come from companies such as DSM (formerly Roche Vitamins) and BASF. Other key suppliers include Tate & Lyle, Kyowa Hakko, and Naturex. In addition to our own modern quality processes, sourcing from these suppliers also provides integrity to our ingredients by utilizing similar quality processes, equipment, expertise and traceability provided by these leading ingredients companies.
The next key component of our seed to feed strategy involves the high quality manufacturing of these ingredients into finished products, including vertical manufacturing. In addition to self-manufacturing, we purchase products from third-party manufacturers which account for a significant amount of our product purchases. During 2017, we purchased approximately 24% of our products from our top three third-party manufacturers. We work closely with our third-party manufacturers to ensure high quality products are produced and tested through a vigorous quality control process. Our current strategy is to continue expanding our self-manufacturing. We accelerated this initiative with the 2009 acquisition of Micelle Labs in Lake Forest, California and the renovation of the facility into a high-output, high-quality powder and liquid manufacturer. We call this facility the Herbalife Innovation and Manufacturing Facility (or “HIM”) Lake Forest. To further strengthen our seed to feed philosophy, we opened an herbal powder and extraction facility in June 2012 located in Changsha, China. The Changsha facility provides high quality tea and herbal raw materials to both our HIM plants as well as our contract manufacturersregulatory authorities around the world. Also, we began production in May 2014 at the HIM Winston-Salem facility, which is our largest manufacturing facility at 800,000 square feet. This facility produces powders, liquids and teas and also has significant expansion opportunities. We have taken similar steps to support our China market, with our HIM Suzhou facility which began operation in 1999. In 2016 we completed renovations and equipment installations, and began operations in our HIM Nanjing, China facility. This has more than doubled our available finished product manufacturing capacity for the China market, and includes significant space for future expansion. Together, these facilities produce approximately 60% to 65% of our inner nutrition products sold worldwide. In our U.S. Company-owned facilities, which produce for the U.S. and most of our international markets, we operate and test to the U.S. Food and Drug Administration, or FDA’s strict acidified food and dietary supplement current Good Manufacturing Practices (cGMPs), even though many of the products being manufactured are classified as food products that are generally subject to less stringent manufacturing standards. For those products not manufactured at HIM facilities, we combine four elements to ensure quality products: the same selectivity and assurance in ingredients as noted above; use of reputable, cGMP-compliant, quality-minded manufacturing partners; a significant supplier qualification and annual audit program; and significant product quality testing.
In addition to ensuring high quality ingredients and building the quality into our finished products, we test our incoming raw materials for compliance to potency, identity and adherence to strict specifications. We also analyze our finished products for label claim and microbiological purity thereby verifying product safety and shelf life. For our self-manufactured products, we do substantially all of our testing in-house at our modern quality control laboratories in the U.S. and China. We have major quality control labs in Southern California, Winston-Salem, North Carolina, Suzhou, China and our Worldwide Quality Center of Excellence in Changsha, China which tests products made at non-HIM facilities, even though they are already tested at audited contract manufacturer labs or third party labs. All HIM quality control labs contain modern analytical equipment and are backed by the expertise in testing and methods development of our scientists. We employ over 500 professionals performing science or technical related functions, which includes product development, quality control, and scientific and regulatory affairs around the world.
The final part of our seed to feed strategy is delivering the high-quality product to our Members and their customers. As the shift in consumption patterns continues to reflect an increasing daily consumption focus, our strategy is to provide more product access points closer to our Members and their customers. We operate distribution points ranging from “hub” distribution centers, or DCs, in Los Angeles, Memphis, and Venray, Netherlands, to mid-size distribution centers in major countries, to small pickup locations spread throughout the world. In addition to these Company-run distribution points, we partner with retail locations to provide Member pickup points in areas which are not well serviced from Company-run distribution points. In aggregate, our Company-run distribution points and partner retail locations represent over 1,600 locations around the world. As many of our products can be temperature sensitive, we monitor our DCs for temperature and humidity and occasionally will use shipping tags which monitor these parameters on certain shipments and provide information to help make adjustments to shipping mode or packaging components to ensure the quality of the product being delivered to an Herbalife Distribution Center.
COMPETITION
We arealso subject to competition for the recruitment of Members from other network marketing organizations, including those that market weight management, targeted nutrition, energy, sports & fitness, and outer nutrition products, and other types of products which are sold through direct selling, along with other entrepreneurial opportunities, including those organizations in which former employees or Members of the Company are involved.opportunities. Our ability to remain competitive depends on factors including having relevant products that meet consumer needs, a rewarding compensation plan, enhanced education and tools, innovation in our products and services, and a financially viable company.
NETWORK MARKETING PROGRAM
Our business model enables us to grow our business with moderate investment in our infrastructureproducts.
future expected financial performance.
Member Base
Our Members are generally those who are eligible to purchase products directly from us.
People become Herbalife Members for a number of reasons. Many first start out as consumersstructure of our products who want to lose weight or improve their nutrition, and are customers of Members. Some later join Herbalife and become Members, which make them eligible to purchase products directly from us, simply to receive a discounted retail price on products they and their families can consume and enjoy.
Some Members join Herbalife to earn part-time or full-time income and are drawn to the entrepreneurial opportunity to earn compensation based on their own skills and hard work. In addition to discounted prices, these Members can earn profit from several sources. First, Members may earn profits by purchasing our products at wholesale prices, discounted depending on the Member’s level within ourNetwork Marketing Plan, and reselling those products at prices they establish for themselves. Second, Members who sponsor other Members and establish, maintain, coach and train their own sales organizations may earn commissions based upon their organization’s sales levels. Members may sponsor other Members in an attempt to build a sales organization, whether or not they have attained any particular level in our Marketing Plan.
Members can achieve the sales leader level based on their purchasing and reselling activity and their organization’s sales production. Sales leaders who have sponsored other Members are also responsible for the development, retention and improved productivity of their sales organizations. However, there are also many Members, which include distributors, who have not sponsored another Member. These “single level” Members are generally considered discount buyers or small retailers. A number of these single-level Members have also attained the sales leader level.
As of December 31, 2017, prior to our February re-qualification process, approximately 625,000 of our Members have attained the level of “sales leader”, of which approximately 536,000 have attained the level of “supervisor” and above in the 93 countries where we use our worldwide Marketing Plan and 89,000 sales officers and independent service providers operating under our China Marketing Plan. Collectively, we refer to this group as “sales leaders.” See Item 7, Management’s Discussion and Analysis of Financial Condition and Operating Results, for a further description of our Sales Leaders and retention rates.
In China, while direct selling is permitted, multi-level marketing is not. As a result, our business model in China differs from that used in other countries. In China, where permitted by law, we sell our products through our Members who are independent contractors. However, Members in China are categorized differently than those in other countries. Chinese citizens who apply and become Members are referred to as “Sales Representatives.” Sales Representatives receive scaled rebates based on the volume of products they purchase. Sales Representatives who reach certain volume thresholds and meet certain performance criteria are eligible to apply to provide marketing, sales and support services. Once their application is accepted, they are referred to as “Service Providers.” Service Providers are independent business entities that are eligible to receive compensation from Herbalife for the marketing, sales and support services they provide so long as they satisfy certain conditions, including procuring the requisite business licenses and having a physical business location. Sales Representatives who are in the process of applying to become Service Providers hold the title of “Sales Officers.”
Geographic Diversification
We have expanded our network marketing organization into 94 countries as of December 31, 2017. While sales within our local markets may fluctuate due to economic, market and regulatory conditions, competitive pressures, political and social instability or for Company-specific reasons, we believe that our geographic diversity mitigates our exposure to any one particular market.
Our Science and our Products
We are committed to providing our Members with high-quality, science-based products to help them increase consumption and retail our products. We believe this can be best accomplished in part by introducing new products and by upgrading, reformulating and repackaging existing product lines. Our internal team of scientists and product developers collaborate with both our Nutrition Advisory Board and key ingredient suppliers to formulate, review and evaluate new product ideas. Once a particular market opportunity has been identified, our scientists along with our operations, marketing and sales teams work closely with our Member leadership to successfully introduce the product into the marketplace.
We believe our focus on nutrition and botanical science and our efforts at combining our internal efforts with the scientific expertise of outside resources that include our ingredient suppliers, major universities, as well as our Nutrition Advisory Board have resulted in product differentiation that has given our Members and consumers increased confidence in our products. We continue to globalize our R&D efforts to better reflect the international nature of the Company by operating R&D centers in Sao Paulo, Brazil, Shanghai, China and Bangalore, India in addition to our main R&D center in Torrance, California.
We continue to increase our investments in the areas of science and other technical functions including: research and development associated with creating new product formulations, clinical studies of existing products or products in development, technical operations to improve current product formulations, quality assurance and quality control to establish the appropriate quality systems, controls and standards as well as rigorous ingredient and product testing to ensure compliance with regulatory requirements, as well as in the areas of regulatory and scientific affairs. Globally, we spent approximately $74 million in 2017 on these activities, excluding any royalty fees associated with our products, which included approximately $3.0 million of research and development spending as defined by U.S. generally accepted accounting principles.
In 2010, we launched the Herbalife Nutrition Institute. The Institute is an informational resource dedicated to promoting excellence in the field of nutrition. The Institute’s website is our primary communication vehicle, and an educational resource for the general public, government agencies, the scientific community, and our Members, about good nutrition and basic health. Its mission is to encourage and support research and education on the relationship between good health, balanced nutrition and a healthy active lifestyle. In addition to providing research and education on the website and through sponsored conferences and symposia, the Institute has associations with major nutrition science organizations.
Our Nutrition Advisory Board and Dieticians Advisory Board are comprised of leading experts around the world in the fields of nutrition and health who educate our Members on the principles of nutrition, physical activity, diet, and healthy lifestyle.
Members of our Nutrition Advisory Board, Dieticians Advisory Board, and the editorial board of the Herbalife Nutrition Institute are affiliated with Herbalife as individuals and not as representatives of their respective universities or organizations.
OUR STRATEGIES
We work closely with our entrepreneurial Members to improve the sustainability of their businesses and reach consumers in over 90 countries to help make the world healthier and happier. These relationships are key to our continued success as they allow us direct access to the voice of consumers. Our Members eagerly identify and test new marketing efforts and programs developed by other Members and disseminate successful techniques to their sales organizations.
As an example of the effectiveness of managing our Member relationship, around 2004, Members in Mexico developed marketing techniques that improved the productivity and efficiency of our Members as well as the affordability of our weight loss products through the creation of businesses that became known as “Nutrition Clubs”. Rather than buying several retail products, these businesses allow consumers to purchase and consume our products each day (a Member marketing technique we refer to as “daily consumption”), while continuing to benefit from the support and interaction with a Member as well as socializing with other customers in a designated location. Other programs to drive daily consumption, whether for weight management or for improved physical fitness, include Member conducted weight loss contests, or Weight Loss Challenges, and Member led fitness programs, or Fit Camps and Member led Wellness Evaluations. We refer to successful Member marketing techniques that we disseminate throughout our Member network, such as Nutrition Clubs, Weight Loss Challenges and Fit Camps as Distributor Methods of Operations, or DMOs.
Our strategies to grow our business center on our positive and productive relationships with our Members and their relationships with consumers. These strategies include:
Deliver Scientifically Validated Effective Products to Support a Healthy Active Lifestyle
Our product strategy is focused on providing high-quality, science-based products that can support a healthy active lifestyle for Members and their customers in the areas of weight management; targeted nutrition (including everyday wellness and healthy aging); energy, sports & fitness; and outer nutrition. We rely on the scientific contributions from members of our Nutrition Advisory Board, along with our in-house scientific team, to continually upgrade or introduce new products as new scientific studies become available and accepted by regulatory authorities around the world. Additionally, to support our daily consumption initiatives, our product strategy includes projects such as seasonal flavors of our meal replacement shake, new flavors of top selling products and various package sizes and products that can be consumed hot, such as our savory shakes and soups. We have a keen focus on product innovation as we aim to have at least one major product launch in each region each year, timed around our major regional Member education and training events. These launches generally target specific product categories and markets we deem strategic to our business.
Improve the Sustainability of Members’ Businesses
We believe our Members are the most important difference in how we go to market with our nutrition products, because of the one-on-one direct contact they have with their customers, along with the education, training and community support services that we believe help improve the nutrition habits of consumers. Combined with our efforts to improve the effectiveness of our Members’ marketing strategies is our strategy to improve the sustainability of our Members’ businesses in part through the evolution of our Marketing Plan.
We believe a gradual qualification approach is generally important to the success and retention of new sales leaders and benefits the business in the long term as it allows new Members to obtain product and customer experience as well as additional training and education on Herbalife products, daily consumption based DMOs, and the business opportunity prior to becoming a sales leader. In general, to become a sales leader, or qualify for a higher level, Members must achieve specified Volume Point thresholds of product sales or earn certain amounts of royalty overrides during specified time periods and generally must re-qualify once each year.
As a leading direct seller, we also endeavor to foster our Members to fairly and honestly market both our products and the business opportunity as part of being an Herbalife Member.
Improve Members’ Skills through Training
We believe that personal and professional development are key to our Members’ success and therefore we and our sales leaders have meetings and events to support this important objective. We and our Member leadership conduct training sessions on local, regional and global levels attended by thousands of Members to provide updates on product education, sales and marketing training, and instruction on available tools. These events are opportunities to showcase and disseminate our Members’ evolving best marketing practices from around the world such as Nutrition Clubs, Weight Loss Challenges, Fit Camps and other business methods, and to introduce new or upgraded products. A variety of training and development tools are also available through online and mobile platforms.
Increase Brand Awareness
To increase our brand awareness, we and our Members have entered into numerous marketing alliances around the world. Herbalife sponsorships of and partnerships with featured athletes, teams and events promote brand awareness, the use of Herbalife products, and “Better Living Through Nutrition.” We continue to build brand awareness and work towards becoming the most trusted brand in nutrition. We also work to leverage the power of our Member base as a marketing and brand-building tool. We maintain a brand style guide and brand asset library so that our Members have access to the Herbalife brand logo and marketing materials for use in their marketing efforts.
Improve Product Access
As adoption of daily consumption methods continue to expand, we have identified a number of methods and approaches that better support Members by providing access points closer to where they do business and by improving product delivery efficiency through our distribution channels. Specific methods vary by markets, considering local Member needs as well as infrastructure and available resources. We continue to expand the number of Sales Centers, smaller pick up locations (including third party collection points), brand experience centers and automated sales centers. This expansion is based on the needs of our Members and the growth of the business primarily from deeper penetration into existing markets. For example, we now have distribution agreements with multiple retailers. We believe that by leveraging the retailer’s distribution system we are providing our Members with easier product access. We will continue to evaluate the need to increase the number of product access points. Many Members today focus on the use of technology to support their businesses. With the increased activity towards our online and mobile tools, we have enhanced our product access and distribution network to support higher volumes of online or mobile orders which result in Members and their customers selecting home or business delivery options. We continue to see online or mobile ordering activity increase in many established markets.
Leverage Our Infrastructure
We continue to invest in our manufacturing and operational infrastructure to accelerate new products to market and accommodate planned business growth. Additionally, we leverage our technology infrastructure in order to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in technology, evolving industry and regulatory standards, emerging data security risks, and changing user patterns and preferences.
We leverage an Oracle business suite platform, which was upgraded in 2017, to support our business operations, improve productivity and support our strategic initiatives. In addition, we also employ information technology systems to support Members and their increasing demand to be more connected to Herbalife, their business and their consumers. These systems include our Internet-based marketing and Member services platform with tools such as BizWorks, MyHerbalife, GoHerbalife, iChange, and Herbalife Mobile. Additionally, we support a growing suite of point of sales tools to assist our Members with the ordering, tracking and their customer relationship management. We also invest in business intelligence tools to enable better analysis of our business and to identify opportunities for growth. We will continue to build on these platforms so that we can take advantage of the rapid development of technology around the globe to support a more robust Member and customer experience.
OUR NETWORK MARKETING PROGRAM
General
Our products are sold or distributed through a global direct selling business model. Many individuals become part of our direct selling network simply to buy products at a discount directly from us for their own consumption. Others choose to also retail and distribute products that they purchase from us. Finally, some individuals choose to also build a direct sales force and earn compensation (which could include commissions, royalty overrides and production bonuses) based on the activity of their sales organizations, as well as an annual bonus that is based on several additional factors. In China, due to local regulations, we sell our products to and through independent service providers, sales representatives, and sales officers to customers and preferred customers, as well as through Company-operated retail stores when necessary.
On July 18, 2002, we entered into an agreement with our Members that provides that we will continue to distribute Herbalife products exclusively to and through our Members and that, other than changes required by
Structure
To
Volume PointsPlan, and reselling those products at prices they establish for themselves to generate retail profit. Second, Members who sponsor other Members and establish, maintain, coach, and train their own sales organizations may earn commissions on the sales of their organization. Members earning such compensation have generally attained the level of sales leader as described below. There are also many Members, which include distributors, who have not sponsored another Member. Members who have not sponsored another Member are generally considered discount buyers or small retailers and a number of these Members have also attained the sales leader level.
Points. To become a sales leader, or qualify for a higher level, Members must achieve specified Volume Point thresholds of product sales or earn certain amounts of royalty overrides during specified time periods and generally must
productive Members.Members, with the exception of those in China and our preferred members, earn the right to receive royalty overrides upon attaining the level of sales leader and above, and production bonuses upon attaining the level of Global Expansion Team and above. Once a Member becomes a sales leader, he or she has the opportunity to qualify by earning specified amounts of royalty overridesthe Global Expansion Team, the Millionaire Team or the President’s Team, and thereby receives production bonuses. We believe that the opportunity for Members to earn royalty overrides and production bonuses contributes significantly to our ability to retain our most active and productive Members.The method for calculating distributor allowances and Marketing Plan payouts generally utilizesvaries depending on product and market and for 2020 utilized on a weighted-average basis approximately 90% to 95% of suggested retail price, depending on the product and market, to which we applyapplied discounts of up to 50% for distributor allowances and payout rates of up to 15% for royalty overrides, up to 7% for production bonuses, and approximately 1% for the Mark Hughes bonus.Our business model in China includes unique features as compared We believe that the opportunity for Members to earn royalty overrides and production bonuses contributes significantly to our traditional business model in orderability to ensure compliance with Chinese government regulations. These include Company operated retail storesretain our most active and certification procedures for sales personnel when necessary. These and other features of our business model in China have resulted in, and will continue to result in, substantial ongoing costs.Sales Leader Re-qualification and Retention
Federal Trade Commission.
|
| Number of Sales Leaders |
|
| Sales Leaders Retention Rate |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
| ||||||
North America |
|
| 61,362 |
|
|
| 79,305 |
|
|
| 88,866 |
|
|
| 74.8 | % |
|
| 58.3 | % |
|
| 58.4 | % |
Mexico |
|
| 74,968 |
|
|
| 67,294 |
|
|
| 83,137 |
|
|
| 71.7 | % |
|
| 57.1 | % |
|
| 56.7 | % |
South & Central America |
|
| 73,375 |
|
|
| 77,523 |
|
|
| 88,392 |
|
|
| 55.2 | % |
|
| 53.0 | % |
|
| 52.0 | % |
EMEA |
|
| 101,101 |
|
|
| 87,500 |
|
|
| 82,025 |
|
|
| 62.2 | % |
|
| 63.6 | % |
|
| 68.4 | % |
Asia Pacific (excluding China) |
|
| 124,555 |
|
|
| 107,871 |
|
|
| 127,252 |
|
|
| 49.7 | % |
|
| 43.8 | % |
|
| 43.9 | % |
Total Sales Leaders |
|
| 435,361 |
|
|
| 419,493 |
|
|
| 469,672 |
|
|
| 60.9 | % |
|
| 54.2 | % |
|
| 54.2 | % |
China |
|
| 47,244 |
|
|
| 41,890 |
|
|
| 32,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Total Sales Leaders |
|
| 482,605 |
|
|
| 461,383 |
|
|
| 501,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Sales Leaders | Sales Leader Retention Rate | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2020 | 2019 | 2018 | |||||||||||||||||||
North America | 71,202 | 66,264 | 49,379 | 65.4 | % | 73.2 | % | 65.9 | % | |||||||||||||||
Mexico | 72,866 | 75,475 | 71,719 | 66.6 | % | 69.9 | % | 66.3 | % | |||||||||||||||
South and Central America | 61,535 | 64,929 | 66,325 | 60.7 | % | 62.2 | % | 59.0 | % | |||||||||||||||
EMEA | 130,438 | 121,297 | 107,528 | 70.6 | % | 71.3 | % | 68.7 | % | |||||||||||||||
Asia Pacific | 158,815 | 133,817 | 114,818 | 65.7 | % | 64.4 | % | 59.0 | % | |||||||||||||||
Total sales leaders | 494,856 | 461,782 | 409,769 | 66.5 | % | 67.9 | % | 63.6 | % | |||||||||||||||
China | 70,701 | 89,077 | 76,600 | |||||||||||||||||||||
Worldwide total sales leaders | 565,557 | 550,859 | 486,369 | |||||||||||||||||||||
Despite the slight decline inWe believe the sales leader retention rate of 67.9% for 2018, we believe the prior trend of increases in the rate in recent yearsyear ended January 2021 is the result of efforts we have made to improve the sustainability of sales leaders’ businesses, such as encouraging Members to obtain experience retailing Herbalife products before becoming a sales leader. As our business operations continue to evolve, including the establishmentsegmentation of a distinct “preferred member” category ofour Member base in certain markets and changes in sales leaderis evaluatingcontinues to evaluate the importance of sales leader retention rate information.
PRODUCT RETURN AND BUYBACK POLICIES
marketing, sales and support services they provide so long as they satisfy certain conditions, including procuring the requisite business licenses, having a physical business location, and complying with all applicable Chinese laws and Herbalife rules.
anti-bribery regulations; (7) antitrust issues; and (8) privacy and data protection. See Part I, Item 1A,
The U.S. Dietary Supplement Health and Education Act of 1994, or DSHEA, revised the provisions of FFDCA concerning the composition and labeling of dietary supplements. Under DSHEA, dietary supplement labeling may display structure/function claims that the manufacturer can substantiate, which are claims that the products affect the structure or function of the body, without prior FDA approval, but with notification to the FDA. They may not bear any claim that they can prevent, treat, cure, mitigate or diagnose disease (a drug claim). In addition,Apart from DSHEA, the agency permits companies to use
program. The Consent Order also prohibits us and other persons who act in active concert with us from representingmisrepresenting that participation in the network marketing program will result in a lavish lifestyle and from using images or descriptions to represent or imply that participation in the program is likely to result in a lavish lifestyle. In addition, the Consent Order prohibits specified misrepresentations in connection with marketing the program, including misrepresentations regarding any fact material to participation such as the cost to participate or the amount of income likely to be earned. The Consent Order also requires us to clearly and conspicuously disclose all information materialrelated to participation in the marketing program, including our refund and buyback policy.
policy on certain company materials and websites.
However, the terms of the Consent Order and the ongoing costs of compliance may adversely affect our business operations, our results of operations and our financial condition. See Part I, Item 1A,
The terms of the Consent Order do not change our going to market through direct selling by independent distributors, and compensating those distributors based upon the product they and their sales organization sell. We have implemented new and enhanced procedures required by the terms of the Consent Order and will continue to do so; however, the terms of the Consent Order and the ongoing costs to comply therewith could adversely affect our business operations, our results of operations and our financial condition. See Part I, Item 1A – Risk Factors of this Annual Report on Form 10-K for a discussion of risks related to the settlement with the FTC.
We also are subject to the risk of private party challenges to the legality of our network marketing program both in the United States and internationally. For example, in
As has been reported in the national media, a hedge fund manager publicly raised allegations
materials.
operations.
Employees
promoting a diverse, equitable, and inclusive work environment. We believe these practices are important to recruiting and retaining the talent to allow our organization to achieve its goals and objectives. We monitor the appropriate human capital needs of our departments and functions with particular focus on the areas where human capital resources are important to daily operations to ensure we can timely manufacture, distribute, and sell products to our Members. As of December 31, 2017,2020, we had approximately 8,3009,900 employees, of which approximately 2,4003,000 were located in the United States. These numbers do not include our Members, who are independent contractors. In certain countries, which include China and Mexico, we have employees who are subject to labor union agreementsagreements.
healthier and more active lifestyle. See the
Item 1A. | R isk Factors |
Industry
We distribute our products exclusively to and through independent Members, and we depend upon them directly for substantially all of our sales. Our Members, including our sales leaders, may voluntarily terminate their Member agreements with us at any time. To increase our revenue, we must increase the number of, or the productivity of, our Members. Accordingly, our success depends in significant part upon our ability to recruit, retain and motivate a large base of Members. The loss of a significant number of Members for any reason could negatively impact sales of our products and could impair our ability to attract new Members. In our efforts to attract and retain Members, we compete with other network marketing organizations, including those in the weight management, dietary and nutritional supplement and personal care and cosmetic product industries. Our operating results could be harmed if our existing and new business opportunities and products do not generate sufficient interest to retain existing Members and attract new Members.
Our Member organization has a high turnover rate, which is a common characteristic found in the direct selling industry. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K for additional information regarding sales leader retention rates.
Extensive
Members, which could materially harm our business, financial condition, and operating results.
the safety and quality of similar products and ingredients distributed by other companies;
our Members;
our network marketing program; and
operating results.Adverse publicity concerning any of our Companyby us or our Members to comply with applicable laws, rules, and regulations, including those regarding product claims and advertising, good manufacturing practices, the regulation of our network marketing program, the registration of our products for sale in our target markets or other aspects of our business,business;have an adverse effect onnegatively impact the goodwill of our Company, and could negatively affect our ability to attract, motivate, and retain Members, which would negatively impactand our ability to generate revenue. We cannot ensure that all of our Members will comply with applicable legal requirements relating to the advertising, labeling, licensing or distribution of our products.the safetyHerbalife Nutrition and quality of our products and ingredientsdirect-selling business as well as similar products and ingredients distributed by other companies can be significantly influenced by media attention, publicized scientific research or findings, widespread product liability claims, and other publicity, concerning our products or ingredients or similar products and ingredients distributed by other companies. Adverse publicity, whether or not it is legitimate. For example, as a result of the prevalence and marked increase in the use of blogs, social media platforms, and other forms of Internet-based communications, the opportunity for dissemination of information, both accurate and inaccurate, is seemingly limitless and readily available, and often does not provide any opportunity for correction or resulting from consumers’ use or misuse of our products,other redress.consumptionuse of our products or ingredients, or any similar products or ingredients with illness or other adverse effects, questions the benefits of our or similarany such products, or claims that any such products are ineffective, inappropriately labeled, or have inaccurate instructions as to their use, could lead to lawsuits or other legal or regulatory challenges and could negativelymaterially and adversely impact our reputation, the market demand for our products, orand our general business.From time to time, we receive inquiries from government agenciesbusiness, financial condition, and third parties requesting information concerning our products. We fully cooperate with these inquiries including, when requested, by the submission of detailed technical dossiers addressing product composition, manufacturing, process control, quality assurance, and contaminant testing. Further, we periodically respond to requests from regulators for additional information regarding product-specific adverse events. We are confident in the safety of our products when used as directed. However, there can be no assurance that regulators in these or other markets will not take actions that might delay or prevent the introduction of new products, or require the reformulation or the temporary or permanent withdrawal of certain of our existing products from their markets. our products or our operations, including our network marketing program or the attractiveness or viability of the financial opportunities provided thereby, has had, and could again have, a negative effect on our ability to attract, motivate, and retain Members, and it could also affecton our share price. InFor example, the mid-1980s, our products and marketing program became the subject of regulatory scrutiny in the United States, resulting in large part from claims and representations made about our products by our Members, including impermissible therapeutic claims. The resulting adverse publicity from the 1986 permanent injunction entered in California caused a rapid, substantial loss of Members in the United States and a corresponding reduction in sales beginning in 1985. In addition, in late 2012, a hedge fund manager publicly raisedSee also the risk factor titled “regarding the legality ofabout our network marketing program and announced that his fund had taken a significant short position regarding our common shares, leading to intense public scrutiny and governmental inquiries, and significant stock price volatility.Company.negativeadverse publicity will, from time to time, continue to negatively impact our business in particular markets and may adversely affect our share price.
Our business is subject to changing consumer trends and preferences, especially with respect to weight management, targeted nutrition, energy, sports & fitness, and other nutrition products. Our continued success depends in part on our ability to anticipate and respond to these changes, and we may not respond in a timely or commercially appropriate manner to such changes. Furthermore, the nutritional supplement industry is characterized by rapid and frequent changes in demand for products and new product introductions and enhancements. Our failure to accurately predict these trends could negatively impact consumer opinion of our products, which in turn could harm our customer and Member relationships and cause the loss of sales. The success of our new product offerings and enhancements depends upon a number of factors, including our ability to:
accurately anticipate customer needs;
innovate and develop new products or product enhancements that meet these needs;
successfully commercialize new products or product enhancements in a timely manner;
price our products competitively;
manufacture and deliver our products in sufficient volumes and in a timely manner; and
differentiate our product offerings from those of our competitors.
If we do not introduce new products or make enhancements to meet the changing needs of our customers in a timely manner, some of our products could be rendered obsolete, which could negatively impact our revenues, financial condition and operating results.
Due to the high level of competition in our industry, we might fail to retain our customers and Members, which would harm our financial condition and operating results.
The business of developing and marketing weight management and other nutrition and personal care products is highly competitive and sensitive to the introduction of new products orand weight management plans, including various prescription drugs, which may rapidly capture a significant share of the market. These market segmentsOur competitors include numerous manufacturers, distributors, marketers, retailersmanufacturers; distributors; marketers; online, specialty, mass, and other retailers; and physicians that actively compete for the business of consumers both in the United States and abroad. In addition, we are subject to increasing competition from sellers that utilize electronic commerce. Some of theseour competitors have longer operating histories, significantly greater financial, technical, product development, marketingresources, better-developed and more innovative sales resources,and distribution channels and platforms, greater name recognition, and larger established customer bases and better-developed distribution channels than we do. Our present orand future competitors may be able to better withstand reductions in prices or other adverse economic or market conditions than we can; develop products that are comparable or superior to those we offer,offer; adapt more quickly than we door effectively to new technologies, changing regulatory requirements, evolving industry trends and standards, orand customer requirements than we can; and/or devote greater resources to the development, promotion, and sale of their products than we do. For example, if our competitors develop other diet or weight management products that prove to be more effective than our products, demand for our products could be reduced. Accordingly, competition may intensify and we may not be able to compete effectively in our markets.
We are also subject to significant competition for the recruitment of Members from other network marketingdirect-selling organizations, including those that market weight management products, dietary and nutritional supplements, personal care products, and other types of products, as well as those organizations in which former employees or Members of the Company are involved. We compete for global customers and Members with regard to weight management, nutritional supplement and personal care products. Our competitors include both direct selling companies such as NuSkin Enterprises, Nature’s Sunshine, Alticor/Amway, Melaleuca, Avon Products, Oriflame, Omnilife, Tupperware and Mary Kay, as well as retail establishments such as Weight Watchers, Jenny Craig, General Nutrition Centers, Wal-Mart and retail pharmacies.
In addition, because the industry in which we operate is not particularly capital intensive or otherwise subject to high barriers to entry, it is relatively easy for new competitors to emerge that will compete with us, including for our Members and their customers. Furthermore, the fact thatAccordingly, competition may intensify and we may not be able to compete effectively in our markets. If we are not able to retain our Members may easily enter and exittheir customers or otherwise compete successfully, our network marketing program contributes to the level of competition that we face. For example, a Member can enter or exit our network marketing system with relative ease at any time without facing a significant investment or loss of capital because (1) we have a low upfront financial cost to become a Herbalife Member, (2) we do not require any specific amount of time to work as a Member, (3) we do not charge Members for any training that we might require, (4) we do not prohibit a new Member from working with another company, and (5) in substantially all jurisdictions, we maintain a buyback program pursuant to which we will repurchase products sold to a Member who has decided to leave the business. Our ability to remain competitive therefore depends, in significant part, on our success in recruiting and retaining Members through an attractive compensation plan, the maintenance of an attractive product portfolio and other incentives. We cannot ensure that our programs for recruitment and retention of Members will be successful and if they are not, ourbusiness, financial condition, and operating results would be harmed.
We are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints both domestically and abroad, and our failure or our Members’ failure to comply with these constraints could lead to the imposition of significant penalties or claims, which could harm our financial condition and operating results.
In both domestic and foreign markets, the formulation, manufacturing, packaging, labeling, distribution, advertising, importation, exportation, licensing, sale and storage of our products are affected by extensive laws, governmental regulations, administrative determinations, court decisions and other similar constraints. Such laws, regulations and other constraints may exist at the federal, state or local levels in the United States and at all levels of government in foreign jurisdictions. There can be no assurance that we or our Members are in compliance with all of these regulations. Our failure or our Members’ failure to comply with these regulations or new regulations could disrupt our Members’ sale of our products, or lead to the imposition of significant penalties or claims and could negatively impact our business. In addition, the adoption of new regulations or changes in the interpretations of existing regulations, such as those relating to genetically modified foods, may result in significant compliance costs or discontinuation of product sales and may negatively impact the marketing of our products, resulting in significant loss of sales revenues.
The Consent Order prohibits us from making, or allowing our Members to make, any representation regarding the amount or level of income, including full-time or part-time income, that a participant can reasonably expect to earn in our network marketing program, unless the representation is non-misleading and we possesses competent and reliable evidence sufficient to substantiate that the representation is true. The Consent Order also prohibits us and other persons who act in active concert with us from representing that participation in the network marketing program will result in a lavish lifestyle and from using images or descriptions to represent or imply that participation in the program is likely to result in a lavish lifestyle. In addition, the Consent Order prohibits specified misrepresentations in connection with marketing the program, including misrepresentations regarding any fact material to participation such as the cost to participate or the amount of income likely to be earned. The Consent Order also requires us to clearly and conspicuously disclose all information material to participation in the marketing program, including our refund and buyback policy before the participant pays any money to us.
On January 4, 2018, the FTC released its Business Guidance Concerning Multi-Level Marketing, or MLM Guidance, in order to help multi-level marketers, or MLMs, apply core consumer protection principles applicable to the multi-level marketing industry to their business practices. Although the MLM Guidance is not binding, the MLM Guidance explains, among other things, how the FTC distinguishes between MLMs with lawful and unlawful compensation structures, how MLMs with unfair or deceptive compensation structures harm consumers, how the FTC treats personal or internal consumption by participants in determining if an MLM’s compensation structure is unfair or deceptive, and how an MLM should approach representations to current and prospective participants. Although we believe our current business practices, which include new and enhanced procedures implemented in connection with the Consent Order, are in compliance with the MLM Guidance, there can be no assurances that the FTC or other third parties would agree.
The FTC revised its Guides Concerning the Use of Endorsements and Testimonials in Advertising, or Guides, which became effective on December 1, 2009. Although the Guides are not binding, they explain how the FTC interprets Section 5 of the FTC Act’s prohibition on unfair or deceptive acts or practices. Consequently, the FTC could bring a Section 5 enforcement action based on practices that are inconsistent with the Guides. Under the revised Guides, advertisements that feature a consumer and convey his or her atypical experience with a product or service are required to clearly disclose the results that consumers can generally expect. In contrast to the 1980 version of the Guides, which allowed advertisers to describe atypical results in a testimonial as long as they included a disclaimer such as “results not typical”, the revised Guides no longer contain such a safe harbor. The revised Guides also add new examples to illustrate the long-standing principle that “material connections” between advertisers and endorsers (such as payments or free products), connections that consumers might not expect, must be disclosed. Herbalife has revised its marketing materials to be compliant with the revised Guides and the Consent Order. However, it is possible that our use, and that of our Members, of testimonials in the advertising and promotion of our products, including but not limited to our weight management products and our income opportunity, will be significantly impacted and therefore might negatively impact our sales.
Governmental regulations in countries where we plan to commence or expand operations may prevent or delay entry into those markets. In addition, our ability to sustain satisfactory levels of sales in our markets is dependent in significant part on our ability to introduce new products into such markets. However, governmental regulations in our markets, both domestic and international, can delay or prevent the introduction, or require the reformulation or withdrawal, of certain of our products. Any such regulatory action, whether or not it results in a final determination adverse to us, could create negative publicity, with detrimental effects on the motivation and recruitment of Members and, consequently, on sales.
We are subject to rules of the Food and Drug Administration, or FDA, for current good manufacturing practices, or cGMPs, for the manufacture, packing, labeling and holding of dietary supplements and over-the-counter drugs distributed in the United States. Herbalife has implemented a comprehensive quality assurance program that is designed to maintain compliance with the cGMPs for products manufactured by or on behalf of Herbalife for distribution in the United States. However, if Herbalife should be found not to be in compliance with cGMPs for the products we self-manufacture, it could negatively impact our reputation and ability to sell our products even after any such situation had been rectified. Further, if contract manufacturers that manufacture products for Herbalife fail to comply with the cGMPs, this could negatively impact Herbalife’s reputation and ability to sell its products even though Herbalife is not directly liable under the cGMPs for such compliance. In complying with the dietary supplement cGMPs, we have experienced increases in production costs as a result of the necessary increase in testing of raw ingredients, work in process and finished products.
Since late 2012, a hedge fund manager has made and continues to make allegations regarding the Company and its network marketing program. We believe these allegations are without merit and are vigorously defending ourselves against such claims, including proactively reaching out to governmental authorities about what we believe is manipulative activity with respect to our securities. Because of these allegations, we and others have received and may receive additional regulatory and governmental inquiries. For example, we have previously disclosed inquiries from the FTC, SEC and other governmental authorities. In the future, these and other governmental authorities may determine to seek information from us and other persons relating to these same or other allegations. If we believe any governmental or regulatory inquiry or investigation is or becomes material, it will be disclosed individually. Consistent with our policies, we have cooperated and will continue to fully cooperate with any governmental or regulatory inquiries or investigations.
Our network marketing program could be found to be not in compliance with current or newly adopted laws or regulations in one or more markets, which could prevent us from conducting our business in these markets or require us to alter compensation practices under our network marketing program, and harm our financial condition and operating results.
Our network marketing program is subject to a number of federal and state regulations administered by the FTC and various federal and state agencies in the United States as well as regulations on direct selling in foreign markets administered by foreign agencies. We are subject to the risk that, in one or more markets, our network marketing program could be found by federal, state or foreign regulators not to be in compliance with applicable law or regulations or we may be required to alter compensation practices under our network marketing program in order to comply with applicable law or regulations. As previously disclosed, we entered into the Consent Order with the FTC to settle the FTC’s multi-year investigation into our business for compliance with these regulations. Another example is the 1986 permanent injunction entered in California in proceedings initiated by the California Attorney General. There can be no assurances other federal, state attorneys general or foreign regulators will not take similar actions.
Regulations applicable to network marketing organizations generally are directed at preventing fraudulent or deceptive schemes, sometimes referred to as “pyramid” or “chain sales” schemes, by ensuring that product sales ultimately are made to consumers and that advancement within an organization is based on sales of the organization’s products rather than investments in the organization or other non-retail sales-related criteria. The regulatory requirements concerning network marketing programs do not include “bright line” rules and are inherently fact-based and, thus, we are subject to the risk that these laws or regulations or the enforcement or interpretation of these laws and regulations by governmental agencies or courts can change. While we believe we are in compliance with these regulations, including those enforced by the FTC and the permanent injunction in California, and are compliant with the Consent Order, there is no assurance any federal, state or foreign courts or agencies or the independent compliance auditor under the Consent Order would agree, including a federal court or the FTC in respect of the Consent Order or a court or the California Attorney General in respect to the permanent injunction.
The ambiguity surrounding these laws can also affect the public perception of the Company. Specifically, in late 2012, a hedge fund manager publicly raised allegations regarding the legality of our network marketing program and announced that his fund had taken a significant short position regarding our common shares, leading to intense public scrutiny and significant stock price volatility. The failure of our network marketing program to comply with current or newly adopted laws or regulations, the Consent Order or the California injunction or any allegations or charges to that effect brought by federal, state, or foreign regulators could negatively impact our business in a particular market or in general and may adversely affect our share price.
We are also subject to the risk of private party challenges to the legality of our network marketing program, whether as a result of the Consent Order or otherwise. Some network marketing programs of other companies have been successfully challenged in the past, while other challenges to network marketing programs of other companies have been defeated. Adverse judicial determinations with respect to our network marketing program, or in proceedings not involving us directly but which challenge the legality of network marketing systems, in any other market in which we operate, could negatively impact our business.
We are subject to the Consent Order with the FTC, the effects of which, or any failure to comply therewith, could harm our financial condition and operating results.
As previously disclosed, on July 15, 2016, we reached a consensual resolution with the FTC regarding its multi-year investigation of our business resulting in the entry into a Stipulation to Entry of Order for Permanent Injunction and Monetary Judgment in the U.S. District Court for the Central District of California. The Consent Order became effective on July 25, 2016 upon final approval by the Court. As part of the Consent Order, we agreed to make a payment of $200 million and to implement certain new procedures and enhance certain existing procedures in the United States. We also agreed to be subject to certain audits by an independent compliance auditor, or the ICA, for a period of seven years; requirements regarding compliance certification and record creation and maintenance; and a prohibition on misrepresentations and misleading claims regarding, among other things, income and lavish lifestyles. The FTC and ICA will also have the right to inspect Company records and request additional compliance reports for purposes of conducting audits pursuant to the Consent Order. In September 2016, we and the FTC mutually selected Affiliated Monitors, Inc. to serve as the ICA. The terms of the Consent Order are described in greater detail in our Current Report on Form 8-K filed on July 15, 2016.
The Consent Order includes a number of restrictions and requirements and therefore creates compliance risks, and while we believe we are fully compliant with the Consent Order, there is no guarantee that we are fully compliant or in the future will continue to be fully compliant with the Consent Order. We do not believe the Consent Order changes our business model as a direct selling company. However, compliance with the Consent Order required us to implement enhanced procedures regarding, among other things, tracking retail sales and internal consumption by distributors. We have instituted controls and procedures and developed technology solutions that we believe address these Consent Order requirements, including tools and software used by distributors to, among other things, document their sales and more efficiently track and manage their customer base. However, there can be no assurances that some or all of these controls and procedures and technology solutions will continue to operate as expected. Any failure of these systems to operate as designed could cause us to fail to maintain the records required under, or otherwise violate terms of, the Consent Order. Compliance with the Consent Order will require the cooperation of Members and, while we have updated our training programs and policies to address the Consent Order and expect our Members to cooperate, we do not have the same level of influence or control over our Members as we could were they our own employees. Failure by our Members to comply with the relevant aspects of the Consent Order could be a violation of the Consent Order and impact our ability to comply. While we believe we are compliant with the Consent Order and our board of directors has established the Implementation Oversight Committee, a committee which meets regularly with management to oversee our compliance with the terms of the Consent Order, there can be no assurances that the FTC or ICA would agree now or will agree in the future. In the event we are found to be in violation of the Consent Order, the FTC could, among other things, take corrective actions such as initiating enforcement actions, seeking an injunction or other restrictive orders and imposing civil monetary penalties against us and our officers and directors.
The Consent Order has impacted, and may continue to impact, our business operations, including our net sales and profitability. For example, the Consent Order imposes certain requirements regarding the verification and receipting of sales and there can be no assurances that these or other requirements of the Consent Order, our compliance therewith and the business procedures implemented as a result thereof, will not continue to lead to reduced sales, whether as a result of undocumented sales activity or otherwise. The Consent Order also imposes restrictions on distributors’ ability to open Nutrition Clubs in the United States. Additionally, the procedures described above, and any other actions taken in respect of continuing compliance efforts with the Consent Order, may continue to be costly. These extensive costs or any amounts in excess of our cost estimates could have a material adverse effect on our financial condition and results of operations. Our Members may also disagree with our decision to enter into the Consent Order, whether because they disagree with certain terms thereof, they believe it will negatively impact their personal business or they would not have settled the investigation on any terms. The Consent Order also provides that if the total eligible U.S. sales on which compensation may be paid falls below 80% of the Company’s total U.S. sales for a given year, compensation payable to distributors on eligible U.S. sales will be capped at 41.75% of the Net Rewardable Sales amount as defined in the Consent Order. While we believe we will continue to achieve the required 80% threshold necessary to pay full distributor compensation, this result is subject to the review and audit of the FTC and ICA and they may not agree with our conclusions. Because our business is dependent on our Members, our business operations and net sales could be adversely affected if U.S. distributor compensation is restricted or if any meaningful number of Members are dissatisfied, choose to reduce activity levels or leave our business altogether. Member dissatisfaction may also negatively impact the willingness of new Members to join Herbalife as a distributor. Further, management and the board of directors may be required to focus a substantial amount of time on compliance activities, which could divert their attention from running and growing our business. We may also be required to suspend or defer many or all of our current or anticipated business development, capital deployment and other projects unrelated to compliance with the Consent Order to allow resources to be focused on our compliance efforts, which could cause us to fall short of our guidance or analyst or investor expectations. In addition, while we believe the Consent Order will set new standards within the industry, our competitors are not required to comply with the Consent Order and may not be subject to similar actions, which could limit our ability to effectively compete for Members, customers and ultimately net sales.
The Consent Order also creates additional third-party risks. Although the Consent Order resolved the FTC’s multi-year investigation into the Company, it does not prevent other third-parties from bringing actions against us, whether in the form of other state, federal or foreign regulatory investigations or proceedings, or private litigation, any of which could lead to, among other things, monetary settlements, fines, penalties or injunctions. Although we neither admitted nor denied the allegations in the FTC’s complaint in agreeing to the terms of the Consent Order (except as to the Court having jurisdiction over the matter), third-parties may use specific statements or other matters addressed in the Consent Order as the basis for their action. The Consent Order or any subsequent legal or regulatory claim may also lead to negative publicity, whether because some view it as a condemnation of the Company or our direct selling business model or because other third parties use it as justification to make unfounded and baseless assertions against us, our business model or our Members. An increase in the number, severity or scope of third-party claims, actions or public assertions may result in substantial costs and harm to our reputation. The Consent Order may also impact third parties’ willingness to work with us as a company.
We believe we have complied with the Consent Order and we will continue to do so. However, the impact of the Consent Order on our business, including the effectiveness of the controls, procedures and technology solutions implemented to comply therewith, and on our business and our member base, could be significant. If our business is adversely impacted, it is uncertain as to whether, or how quickly, we would be able to rebuild, irrespective of market conditions. Our financial condition and results of operations could be harmed if we fail to continue to comply with the Consent Order, if costs related to compliance exceed our estimates, if it continues to have a negative impact on net sales, or if it leads to further legal, regulatory, or compliance claims, proceedings, or investigations or litigation.
A substantial portion of our business is conducted in foreign markets, exposing us to the risks of trade or foreign exchange restrictions, increased tariffs, foreign currency fluctuations, disruptions or conflicts with our third party importers and similar risks associated with foreign operations.
Approximately 80% of our net sales for the year ended December 31, 2017 were generated outside the United States, exposing our business to risks associated with foreign operations. For example, a foreign government may impose trade or foreign exchange restrictions or increased tariffs, or otherwise limit or restrict our ability to import products into a country, any of which could negatively impact our operations. We are also exposed to risks associated with foreign currency fluctuations. For instance, purchases from suppliers are generally made in U.S. dollars while sales to Members are generally made in local currencies. Accordingly, strengthening of the U.S. dollar versus a foreign currency could have a negative impact on us. Although we engage in transactions to protect against risks associated with foreign currency fluctuations, we cannot be certain any hedging activity will effectively reduce our exchange rate exposure. Additionally, we may be negatively impacted by conflicts with or disruptions caused or faced by our third party importers, as well as conflicts between such importers and local governments or regulating agencies. Our operations in some markets also may be adversely affected by political, economic and social instability in foreign countries. Our operations, both domestically and internationally, could also be affected by laws and regulations related to immigration. For example, current and future tightening of U.S. immigration controls may adversely affect the residence status of non-U.S. employees in our U.S. locations or our ability to hire new non-U.S. employees in such locations and may adversely affect the ability of non-U.S. Members from entering the United States. As we continue to focus on expanding our existing international operations, these and other risks associated with international operations may increase, which could harm our financial condition and operating results.
Another risk associated with our international operations is the possibility that a foreign government may impose foreign currency remittance restrictions. Due to the possibility of government restrictions on transfers of cash out of the country and control of exchange rates, we may not be able to immediately repatriate cash at the official exchange rate. If this should occur, or if the official exchange rate devalues, it may have a material adverse effect on our business, assets, financial condition, liquidity, results of operations or cash flows. For example, currency restrictions enacted by the Venezuelan government continue to be restrictive and have impacted the ability of our subsidiary in Venezuela, or Herbalife Venezuela, to obtain U.S. dollars in exchange for Venezuelan Bolivars at the official foreign exchange rate. These currency restrictions and current pricing restrictions continue to limit Herbalife Venezuela’s ability to import U.S. dollar denominated raw materials and finished goods which in addition to the Venezuelan Bolivar devaluations has significantly negatively impacted our Venezuelan operations. If we are unsuccessful in implementing any financially and economically viable strategies, including local manufacturing, we may be required to fundamentally change our business model or suspend or cease operations in Venezuela. Also, if the foreign currency and pricing or other restrictions in Venezuela intensify or do not improve and, as a result, impact our ability to control our Venezuelan operations, we may be required to deconsolidate Herbalife Venezuela for U.S. GAAP purposes and would be subject to the risk of further impairments.
Our business in China is subject to general, as well as industry-specific, economic, political and legal developments and risks in China and requires that we utilize a modified version of the business model we use elsewhere in the world.
Our expansion of operations into China and the continued success of our business in China are subject to risks and uncertainties related to general economic, political and legal developments in China, among other things. The Chinese government exercises significant control over the Chinese economy, including but not limited to controlling capital investments, allocating resources, setting monetary policy, controlling and monitoring foreign exchange rates, implementing and overseeing tax regulations, providing preferential treatment to certain industry segments or companies and issuing necessary licenses to conduct business. In addition, we could face additional risks resulting from changes in China’s data privacy and cybersecurity requirements. Accordingly, any adverse change in the Chinese economy, the Chinese legal system or Chinese governmental, economic or other policies could have a material adverse effect on our business in China and our prospects generally.
China has published regulations governing direct selling and prohibiting pyramid promotional schemes, and a number of administrative methods and proclamations have been issued. These regulations require us to use a modified version of the business model we use in other markets. To allow us to operate under these regulations, we have created and introduced a model specifically for China based on our understanding as to how Chinese regulators are interpreting and enforcing these regulations, our interpretation of applicable regulations and our understanding of the practices of other international direct selling companies in China.
In China, we have sales representatives who are permitted by the terms of our direct selling licenses to sell away from fixed retail locations in the provinces of Jiangsu, Guangdong, Shandong, Zhejiang, Guizhou, Beijing, Fujian, Sichuan, Hubei, Shanxi, Shanghai, Jiangxi, Liaoning, Jilin, Henan, Chongqing, Hebei, Shaanxi, Tianjin, Heilongjiang, Hunan, Guangxi, Hainan, Anhui, Yunnan, Gansu, Ningxia, and Inner Mongolia. In Xinjiang province, where the Company does not have a direct selling license, it has a Company-operated retail store that can directly serve customers and preferred customers. With online orderings throughout China, there has been a declining demand in Company-operated retail stores.
We also engage independent service providers who meet both the requirements to operate their own business under Chinese law as well as the conditions set forth by Herbalife to provide marketing, sales support and other services to Herbalife customers. In China, our independent service providers are compensated for marketing, sales support, and other services instead of the Member allowances and royalty overrides utilized in our global marketing plan. The service hours and related fees eligible to be earned by the independent service providers are based on a number of factors, including the sales generated through them and through others to whom they may provide marketing, sales support and other services, the quality of their service, and other factors. Total compensation available to our independent service providers in China can generally be comparable to the total compensation available to other sales leaders globally.
These business model features in China are not common to the business model we employ elsewhere in the world, and based on the direct selling licenses we have received and the terms of those which we hope to receive in the future to conduct a direct selling enterprise in China, our business model in China will continue to incorporate some or all of these features. The direct selling regulations require us to apply for various approvals to conduct a direct selling enterprise in China. The process for obtaining the necessary licenses to conduct a direct selling business is protracted and cumbersome and involves multiple layers of Chinese governmental authorities and numerous governmental employees at each layer. While direct selling licenses are centrally issued, such licenses are generally valid only in the jurisdictions within which related approvals have been obtained. Such approvals are generally awarded on local and provincial bases, and the approval process requires involvement with multiple ministries at each level. Our participation and conduct during the approval process is guided not only by distinct Chinese practices and customs, but is also subject to applicable laws of China and the other jurisdictions in which we operate our business, including the United States, as well as our internal code of ethics. There is always a risk that in attempting to comply with local customs and practices in China during the application process or otherwise, we will fail to comply with requirements applicable to us in China itself or in other jurisdictions, and any such failure to comply with applicable requirements could prevent us from obtaining the direct selling licenses or related local or provincial approvals. Furthermore, we rely on certain key personnel in China to assist us during the approval process, and the loss of any such key personnel could delay or hinder our ability to obtain licenses or related approvals. For all of the above reasons, there can be no assurance that we will obtain additional direct selling licenses, or obtain related approvals to expand into any or all of the localities or provinces in China that are important to our business. Our inability to obtain, retain, or renew any or all of the licenses or related approvals that are required for us to operate in China could negatively impact our business.
Additionally, although certain regulations have been published with respect to obtaining and operating under such approvals and otherwise conducting business in China, other regulations are pending and there continues to be uncertainty regarding the interpretation and enforcement of Chinese regulations. The regulatory environment in China is evolving, and officials in the Chinese government, including at the local and central level, exercise broad discretion in deciding how to interpret, apply, and enforce regulations as they deem appropriate, including to promote social order. Regulators in China may change how they interpret and enforce the direct selling regulations, both current interpretations and enforcement thereof or future iterations. Regulators in China may also modify the regulations. We cannot be certain that our business model will continue to be deemed by national or local Chinese regulatory authorities to be compliant with any such regulations. The Chinese government rigorously monitors the direct selling market in China, and in the past has taken serious action against companies that the government believed were engaging in activities they regarded to be in violation of applicable law, including shutting down their businesses and imposing substantial fines. For example, China’s State Administration for Industry and Commerce, Ministry of Education, Ministry of Public Security and Ministry of Human Resources and Social Security carried out a three-month campaign which ended on November 15, 2017 to investigate pyramid selling activities in order to eliminate activities prohibited under relevant regulations. The campaign sought to eliminate organizations that use recruitment to lure and mislead people into participating in pyramid schemes. As a result, there can be no guarantee that the Chinese government’s current or future interpretation and application of the existing and new regulations will not negatively impact our business in China, result in regulatory investigations or lead to fines or penalties against us or our Chinese Members. If our business practices are deemed to be in violation of applicable regulations as they are or may be interpreted or enforced, or modified regulations, in particular with respect to the factors used in determining the services a service provider is eligible to perform and service fees they are eligible to earn and to receive, then we could be sanctioned and/or required to change our business model, either of which could have a significant adverse impact on our business in China.
Chinese regulations prevent persons who are not Chinese nationals from engaging in direct selling in China. We cannot guarantee that any of our Members living outside of China or any of our sales representatives or independent service providers in China have not engaged or will not engage in activities that violate our policies in this market, or that violate Chinese law or other applicable law, and therefore result in regulatory action and adverse publicity.
China has also enacted labor contract and social insurance legislation. We have reviewed our employment contracts and contractual relations with employees in China, which include certain of our employed sales personnel, and have transferred those employed sales personnel to independent service providers and have made such other changes as we believe to be necessary or appropriate to bring these contracts and contractual relations into compliance with these laws and their implementing regulations. In addition, we continue to monitor the situation to determine how these laws and regulations will be implemented in practice. There is no guarantee that these laws will not adversely impact us, cause us to change our operating plan for China or otherwise have an adverse impact on our business operations in China.
We may continue to experience growth in China, and there can be no assurances that we will be able to successfully manage expansion of manufacturing operations and a growing and dynamic sales force. If we are unable to effectively scale our supply chain and manufacturing infrastructure to support future growth in China, our operations in China may be adversely impacted.
If we fail to further penetrate existing markets, then the growth in sales of our products, along with our operating results, could be negatively impacted.
The success of our business is to a large extent contingent on our ability to further penetrate existing markets which is subject to numerous factors, many of which are out of our control. Government regulations in both our domestic and international markets can delay or prevent the introduction, or require the reformulation or withdrawal, of some of our products, which could negatively impact our business, financial condition and results of operations. Also, our ability to increase market penetration in certain countries may be limited by the finite number of persons in a given country inclined to pursue a direct selling business opportunity or consumers willing to purchase Herbalife products. Moreover, our growth will depend upon improved training and other activities that enhance Member retention in our markets. While we have recently experienced significant growth in certain of our markets, we cannot assure you that such growth levels will continue in the immediate or long term future. Furthermore, our efforts to support growth in such international markets could be hampered to the extent that our infrastructure in such markets is deficient when compared to our infrastructure in our more developed markets, such as the United States. Therefore, we cannot assure you that our general efforts to increase our market penetration and Member retention in existing markets will be successful. If we are unable to further penetrate existing markets, our operating results could suffer.
Our business could be materially and adversely affected as a result of natural disasters, other catastrophic events, acts of war or terrorism, or cyber-security incidents and other acts by third parties.
We depend on the ability of our business to run smoothly, including the ability of Members to engage in their day-to-day selling and business building activities and the ability of our inventories and products to move reasonably unimpeded around the world. Any material disruption caused by natural disasters, including, but not limited to, fires, floods, hurricanes, volcanoes, and earthquakes; power loss or shortages; environmental disasters; telecommunications or business information systems failures; acts of war or terrorism and other similar disruptions, including those due to cyber-security incidents, ransomware, or other actions by third parties, could adversely affect our ability to conduct business. If such disruptions result in significant cancellations of Member orders, contribute to a general decrease in local, regional or global economic activity, directly impact our marketing, manufacturing, financial or logistics functions, or impair our ability to meet Member demands, our operating results and financial condition could be materially adversely affected. For example, our operations in Mexico were impacted by flooding in September 2017. The severe weather conditions directly affected inventory stored at that facility. Furthermore, our headquarters and one of our distribution facilities are located in Southern California, an area susceptible to earthquakes. Although the events in Mexico did not have a material negative impact to our Mexico operations, we cannot assure you that any future natural disasters, catastrophic events, acts of war or terrorism and other similar disruptions, including those due to cyber-security incidents, ransomware, or other actions by third parties, will not adversely affect our ability to operate our business and our financial condition and results of operations.
business, financial condition, and operating results.
Our ability to effectively manage our network of Members, We have encountered, and to ship products, and track royalty and bonus payments on a timely basis, depends significantly on our information systems. The failure of our information systems to operate effectively, or a breachmay encounter in security of these systems, could adversely impact the promptness and accuracy of our product distribution and transaction processing. We could be required to make significant additional expenditures to remediate any such failure, problem or breach.
Anyone who is able to circumvent our security measures could misappropriate confidential or proprietary information, including that of third parties such as our Members, cause interruptionfuture, errors in our operations, damage our computers or otherwise damage our reputation and business. We may need to expend significant resources to protect against security breaches or to address problems caused by such breaches. Any actual security breaches could damage our reputation and result in a violation of applicable privacy and other laws, legal and financial exposure, including litigation and other potential liability, and a loss of confidence in our security measures, which could have an adverse effect on our results of operationssoftware and our reputation as a brand, business partner or employer. In addition, employee error or malfeasance or other errorsenterprise network, and inadequacies in the storage, use or transmission of any such information could result in a disclosure to third parties. If this should occur we could incur significant expenses addressing such problems. Since we collectsoftware and store Member and vendor information, including credit card information, these risks are heightened.
In addition, the use and handling of this information is regulatedservices supplied by evolving and increasingly demanding laws and regulations, such as the European Union General Data Protection Regulation, or the GDPR, which will take effect in May 2018. These laws and regulations are increasing in complexity and number, change frequently and increasingly conflict among the various countries in which we operate, which has resulted in greater compliance risk and cost for us. If we fail to comply with these laws or regulations, we could be subject to significant litigation, monetary damages, regulatory enforcement actions or fines in one or more jurisdictions, which could have a material adverse effect on our results of operations.
Since we rely on independent third parties for the manufacture and supply of certain of our products, ifvendors, although to date none of these third partieserrors or inadequacies have had a meaningful adverse impact on our business, financial condition or operating results.
Amaterially and adversely impacted.
For the portion of our product supply that is self-manufactured, we believe we have significantly lowered the product supply risk, as the risk factors of financial health, liquidity, capacity expansion, reliability and product quality are all within our control. However, increases to the volume of products that we self-manufacture in our Winston-Salem, Lake Forest, Nanjing, Suzhou, and Changsha facilities raise the concentration risk that a significant interruption of production at any of our facilities due to, for example, natural disasters including earthquakes, hurricanes and floods, technical issues or work stoppagesthird-party contract manufacturers could impede our ability to conduct business. While ourwe have business continuity programs for our manufacturing facilities which contemplate and plan for such events, if we were to experience such an event resulting in the temporary, partial, or complete shutdown of one of these manufacturing facilities, we could be required to transfer manufacturing to thea surviving facility and/or third-party contract manufacturers if permissible. When permissible, converting or transferring manufacturing to a third-party contract manufacturer could be expensive and time-consuming, result in delays in our production or shipping, reduce our net sales, damage our relationship with Members, and damage our reputation, in the marketplace, any of which could harm our business, resultsfinancial condition, and operating results. Additionally, we cannot assure you that our third-party contract manufacturers will continue to reliably supply products to us at the levels of operationsquality, or the quantities, we require, and financial condition.
in compliance with applicable laws, including the FDA’s CGMP regulations. Our product supply contracts generally have a three-year term.terms. Except for force majeure events, such as natural disasters and other acts of God, andtime periodtime-period and we have exercised this right in the past. Globally, we have over 50 product suppliers,contract manufacturers, with Fine Foods (Italy) being a major supplier for meal replacements, protein powders and nutritional supplements. Additionally, we useOur contract manufacturers are also located in the United States, India, Brazil, South Korea, Japan, Taiwan, Germany, and the Netherlands to support our global business. In the eventNetherlands. If any of our contract manufacturers were to become unable or unwilling to continue to provide us with products in required volumes and at suitable quality levels, we would be required to identify and obtain acceptable replacement manufacturing sources. There is no assurance that we would be able to obtain acceptable alternative manufacturing sources on a cost-effective or timely basis.basis, or at all. An extended interruption in the supply of our products, including any interruptions that may arise as a result of the
The
Unlike in most of the other markets in which we operate,For example, there is limited protection of intellectual property is available under Chinese law. Accordingly, we face an increased risk in China that unauthorized parties may attempt to copy or otherwise obtain or use our trademarks, copyrights, product formulations or other intellectual property. Further, because Chinese commercial law is relatively undeveloped, we may have limited legal recourse in the event we encounter significant difficulties with intellectual property theft or infringement. As a result, we cannot assure you that we will be able to adequately protect our product formulationsintellectual property in any jurisdictions. The loss or other intellectual property.
We permit the limited useinfringement of our trademarks byor tradenames or other proprietary rights could impair the goodwill associated with our Members to assist them in marketingbrands and harm our products. It is possible that doing so may increase the risk of unauthorized use or misuse ofreputation, which could materially harm our trademarks in markets where their registration status differs from that asserted by our Members, or they may be used in association with claims or products in a manner not permitted under applicable laws and regulations. Were these to occur it is possible that this could diminish the value of these marks or otherwise impair our further use of these marks.
If our Members fail to comply with labeling laws, then ourbusiness, financial condition, and operating results would be harmed.
Although the physical labeling of our products is not within the control of our Members, our Members must nevertheless advertise our products in compliance with the extensive regulations that exist in certain jurisdictions, such as the United States, which considers product advertising to be labeling for regulatory purposes.
Our products are sold principally as foods, dietary supplements and cosmetics and are subject to rigorous FDA and related legal regimens limiting the types of therapeutic claims that can be made for our products. The treatment or cure of disease, for example, is not a permitted claim for these products. While we train our Members and attempt to monitor our Members’ marketing materials, we cannot ensure that all such materials comply with applicable regulations, including bans on therapeutic claims. results.
If our intellectual property is not adequate to provide us with a competitive advantage or to prevent competitors from replicating our products, or if we infringe the intellectual property rights of others, then our business, financial condition, and operating results wouldcould be materially harmed.
Our future success and ability to compete depend upon our ability to timely produce innovative products and product enhancements that motivate our Members and customers, which we attempt to protect under a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions. However, our products are generally not patented domestically or abroad, and the legal protections afforded by common law and contractual proprietary rights in our products provide only limited protection and may be time-consuming and expensive to enforce or maintain. Further, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our proprietary rights or from independently developing non-infringing products that are competitive with, equivalent to or superior to our products.
Monitoring infringement or misappropriation of intellectual property can be difficult and expensive, and we may not be able to detect every infringement or misappropriation of our proprietary rights. Even if we do detect infringement or misappropriation of our proprietary rights, litigation to enforce these rights could cause us to divert financial and other resources away from our business operations. Further, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States.
Additionally, third
Since one of our products constitutes a significant portion of our net sales, significant decreases in consumer demand for this product or our failurefuture and we may need to produce a suitable replacement should we cease offering it would harm our financial condition and operating results.
For 2017, 2016, and 2015, our Formula 1 Healthy Meal, our best-selling product line, approximated 30% of our net sales. If consumer demand for this product decreases significantlysettle disputes on terms that are unfavorable to us, or we cease offering this product without a suitable replacement, then our financial condition and operating results would be harmed.
If we lose the services of members of our senior management team, then our financial condition and operating results could be harmed.
We depend on the continued services of our Executive Chairman, Michael O. Johnson, our Chief Executive Officer, Richard P. Goudis, and our senior management team as it works closely with the senior Member leadership to create an environment of inspiration, motivation and entrepreneurial business success. Any significant leadership change or senior management transition involves inherent risk and any failure to ensure a smooth transition could hinder our strategic planning, execution and future performance. While we strive to mitigate the negative impact associated with changes to our senior management team, there may be uncertainty among investors, employees, Memberssubject to an unfavorable judgment. Defending these and others concerning our future directionother intellectual property infringement claims can be time-consuming and performance.costly and require the attention of management. The terms of any settlement or judgment may require us to pay substantial amounts to the other party or cease, or seek a license to continue, using products or marks found to be in violation of third-party intellectual property rights. A license may not be available on reasonable terms, or at all, and we may be required to develop alternative
Additionally, although we have entered into employment agreements with certain membersassessments relating to the activities of our senior management team,Members, which could materially harm our financial condition and do not believe thatoperating results.
Our international operationsmanythe other foreign countries, includingjurisdictions in which we operate.
the business model we use elsewhere in the world.
On
Wefrom timein place of LIBOR, no assurance can be made that such alternative benchmark rate will perform in a manner similar to timeLIBOR or result in interest rates that are at least as favorable to us as those that would have resulted had LIBOR remained in effect, which could result in an increase in our interest expense and other debt service obligations. In addition, the overall credit market may be disrupted as a certain amountresult of cashthe replacement of LIBOR or in orderthe anticipation thereof, which could have an adverse impact on our ability to satisfy the obligations relating torefinance, reprice, or amend our convertible notes. existing indebtedness or incur additional indebtedness on favorable terms or at all.
In February 2014, wego down.
Holders of our 2024 Convertible Notes may convert their notes at their option under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending March 31, 2014, if the last reported sale price of our common shares for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter exceeds 130% of the conversion price for the Convertible Notes on each applicable trading day; (ii) during the five business-day period immediately after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of Convertible Notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our common shares and the conversion rate for the Convertible Notes for each such day; or (iii) upon the occurrence of specified corporate events.option. On and after MayDecember 15, 2019,2023, holders may convert their 2024 Convertible Notes at any time, regardless of the foregoing circumstances. time.
The conversion of any of the Convertible Notes into common shares could have a dilutive effect that could cause our share price to go down.
The Convertible Notes, until May 15, 2019, are convertible into common shares only
The conversion rate for the Convertible Notes as of February 7, 2014, the date of issuance thereof, was 11.5908 common shares per $1,000 principal amount or a conversion price of approximately $86.28 per common share. Because the conversion rate of the 2024 Convertible Notes adjusts upward upon the occurrence of certain events, such as a dividend payment, our existing shareholders may experience morefurther dilution if any or all of the 2024 Convertible Notes are converted into common shares afterand the currently effective adjusted conversion rates became effective.
If we do not comply with transfer pricing, customs duties, VAT, and similar regulations, then we may be subjected to additional taxes, duties, interest and penalties in material amounts, which could harmrate is further adjusted. For more information regarding the conversion features of our financial condition and operating results.
As a multinational corporation, operating in many countries2024 Convertible Notes, including the United States, we are subject to transfer pricing and other tax regulations designed to ensureevents that our intercompany transactions are consummated at prices that have not been manipulated to produce a desired tax result, that appropriate levels of income are reported as earned by our United States or local entities, and that we are taxed appropriately on such transactions. In addition, our operations are subject to regulations designed to ensure that appropriate levels of customs duties are assessed on the importation of our products. We are currently subject to pending or proposed audits that are at various levels of review, assessment or appeal in a number of jurisdictions involving transfer pricing issues, income taxes, customs duties, value added taxes, withholding taxes, sales and use and other taxes and related interest and penalties in material amounts. In some circumstances, additional taxes, interest and penalties have been assessed and we will be required to pay the assessments or post surety, in order to challenge the assessments.
The imposition of new taxes, even pass-through taxes such as VAT, could have an impact on our perceived product pricing and will likely require that we increase prices in certain jurisdictions and therefore could have a potential negative impact on our business and results of operations. We have reserved in our consolidated financial statements an amount that we believe represents the most likely outcome of the resolution of these disputes, but if we are incorrect in our assessment we may have to pay the full amount asserted which could potentially be material. Ultimate resolution of these matters may take several years,allow for early conversion and the outcome is uncertain. If the United States Internal Revenue Service or the taxing authorities of any other jurisdiction were to successfully challenge our transfer pricing practices or our positions regarding the payment of income taxes, customs duties, value added taxes, withholding taxes, sales and use, and other taxes, we could become subject to higher taxes, we may determine it is necessary to raise prices in certain jurisdictions accordingly and our revenue and earnings and our results of operations could be adversely affected.
Seecurrent conversion rate, see Note 7, Contingencies5,
U.S. Tax Reform may adversely impact certain U.S. shareholders of the Company.
The Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”) was enacted on December 22, 2017. U.S. Tax Reform is expected to impact whether we, or any of our non-U.S. corporate subsidiaries, are treated as controlled foreign corporations (“CFCs”), including on a retroactive basis. This may result in certain U.S. shareholders being subject to special and potentially adverse tax treatment, including the current inclusion of income of certain of our foreign subsidiaries.
A company will be classified as a CFC, for any particular taxable year, if U.S. persons (including individuals and entities) who own 10% or more of the voting power or value (the “10% Tests”) of the shares (“10% U.S. Shareholders”) own, in the aggregate, more than 50% of the total combined voting power or value of the shares. In determining the voting power of the shares, special voting rights to appoint directors, whether by law, agreement, or other arrangement, may also be taken into account. For purposes of applying the 10% Tests, certain constructive ownership rules apply, which attribute share ownership among certain family members and certain entities and their owners. The constructive ownership rules may also attribute share ownership to persons (including individuals and entities) that are entitled to acquire shares pursuant to an option, such as the holders of our Convertible Notes. U.S. Tax Reform expanded the constructive ownership rules causing non-U.S. corporations that were not previously classified as CFCs to become CFCs. These constructive ownership rules are significantly complex and circumstance specific.
As a result of U.S. Tax Reform, one or more of our non-U.S. corporate subsidiaries not previously classified as CFCs will now likely be CFCs (the “New Herbalife CFC Subsidiaries”). Any such New Herbalife CFC Subsidiary will be treated as a CFC for its 2017 and future taxable years as determined on a year-by-year basis. As a result of one or more of our non-U.S. corporate subsidiaries being classified as New Herbalife CFC Subsidiaries, our 10% U.S. Shareholders will be subject to special and potentially adverse tax treatment on an on-going basis, including the inclusion of certain income generated during each taxable year by such New Herbalife CFC Subsidiaries. Any shareholders who own, or contemplate owning, 10% or more of our shares (taking into account the impact of any share repurchases we may undertake pursuant to share repurchase programs as well as the impact of the constructive ownership rules) are urged to consult their tax advisors with respect to the special rules applicable to 10% U.S. Shareholders of CFCs.
Further, under U.S. Tax Reform, a one-time tax is imposed upon 10% U.S. Shareholders on certain historic accumulated, undistributed foreign earnings of CFCs and other “specified foreign corporations,” which earnings have not been previously subject to tax at the U.S. shareholder level (the “Mandatory Repatriation Tax”). A specified foreign corporation is any CFC or other non-U.S. corporation that has at least one U.S. corporate shareholder that is a 10% U.S. Shareholder. The Company believes that it may be classified as a specified foreign corporation and that one or more of its non-U.S. corporate subsidies may be classified as specified foreign corporations. Because the rules relating to the Mandatory Repatriation Tax are subject to additional guidance, including anticipated Internal Revenue Service pronouncements or other clarifications, shareholders who own, or contemplate owning, 10% or more of our shares (taking into account the impact of any share repurchases we may undertake pursuant to share repurchase programs as well as the impact of the constructive ownership rules) are urged to consult their tax advisors.
No assurances can be given that future legislative, administrative, or judicial developments will not result in an increase in the amount of U.S. taxes payable by an investor in our shares. If any such developments occur, such developments could have a material and adverse effect on an investment in our shares.
Changes in tax laws, treaties or regulations, or their interpretation could adversely affect us.
A change in applicable tax laws, treaties or regulations or their interpretation could result in a higher effective tax rate on our worldwide earnings and such change could be significant to our financial results. The Organisation for Economic Co-operation and Development has, within recent years, released guidance covering various international tax standards as part of its “base erosion and profit shifting” or “BEPS” initiative. The anticipated implementation of BEPS by non-U.S. jurisdictions in which we operate could result in changes to tax laws and regulations, including with respect to transfer pricing that could materially increase our effective tax rate.
No assurances can be given that future legislative, administrative, or judicial developments will not result in an increase in the amount of U.S. taxes payable by us or our subsidiaries. If any such developments occur, our business, financial condition, and results of operations could be materially and adversely affected.
We may be held responsible for certain taxes or assessments relating to the activities of our Members, which could harm our financial condition and operating results.
Our Members are subject to taxation, and in some instances, legislation or governmental agencies impose an obligation on us to collect taxes, such as value added taxes and social contributions, and to maintain appropriate records. In addition, we are subject to the risk in some jurisdictions of being responsible for social security, withholding or other taxes with respect to payments to our Members. In addition, in the event that local laws and regulations or the interpretation of local laws and regulations change to require us to treat our Members as employees, or that our Members are deemed by local regulatory authorities in one or more of the jurisdictions in which we operate to be our employees rather than independent contractors under existing laws and interpretations, we may be held responsible for social security contributions, withholding and related taxes in those jurisdictions, plus any related assessments and penalties, which could harm our financial condition and operating results. See Note 7, Contingencies, to the Consolidated Financial Statements included in Item 15 of this Annual Report on Form 10-K for a more specific discussion of contingencies related to the activities of our Members.
We may incur material product liability claims, which could increase our costs and harm our financial condition and operating results.
Our ingestible products include vitamins, minerals and botanicals and other ingredients and are classified as foods or dietary supplements and are not subject to pre-market regulatory approval in the United States. Our products could contain contaminated substances, and some of our products contain some ingredients that do not have long histories of human consumption. We rely upon published and unpublished safety information including clinical studies on ingredients used in our products and conduct limited clinical studies on some key products but not all products. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. As a marketer of dietary and nutritional supplements and other products that are ingested by consumers or applied to their bodies, we have been, and may again be, subjected to various product liability claims, including that the products contain contaminants, the products include inadequate instructions as to their uses, or the products include inadequate warnings concerning side effects and interactions with other substances. It is possible that widespread product liability claims could increase our costs, and adversely affect our revenues and operating income. Moreover, liability claims arising from a serious adverse event may increase our costs through higher insurance premiums and deductibles, and may make it more difficult to secure adequate insurance coverage in the future. In addition, our product liability insurance may fail to cover future product liability claims, thereby requiring us to pay substantial monetary damages and adversely affecting our business. Finally, given the level of self-insured retentions that we have accepted under our current product liability insurance policies, which is $12.5 million, in certain cases we may be subject to the full amount of liability associated with any injuries, which could be substantial.
ShareholdersStates.
In addition, our articles of association contain certain other provisions which could have an effect of discouraging a takeover or other transaction or preventing or making it more difficult for shareholders to changeprohibit the direction or management of our Company, including the inabilityability of shareholders to act by written consent, a limitation onlimit the ability of shareholders to call special meetings of shareholders, and contain advance notice provisions. As a result, our shareholders may have less input into the management of our Company than they might otherwise have if these provisions were not included in our articles of association.
law.
Additionally, the consent of each holder of a fixed or floating security interest (in essence a documented security interest as opposed to one arising by operation of law) is required to be obtained unless the Grand Court of the Cayman Islands waives such requirement.
The merger provisions contained within Part XVI of the Companies Law do contain shareholder appraisal rights similar to those provided for under Delaware law. Such rights are limited to a merger under Part XVI and do not apply to schemes of arrangement as discussed below.
The procedural and legal requirements necessary to consummate these transactionsa scheme of arrangement are more rigorous and take longer to complete than the procedures typically required to consummate a merger in the United States. Under Cayman Islands law and practice, a scheme of arrangement in relation to a solvent Cayman Islands company must be approved at a shareholders’ meeting by a majority in number of each class of the company’s shareholders who are present and voting (either in person or by proxy) at such meeting. The shares voted in favor of the scheme of arrangement must also represent at least 75% of the value of each relevant class of the company’s shareholders present and voting at the meeting. The convening of these meetings and the terms of the amalgamationarrangement must also be sanctioned by the Grand Court of the Cayman Islands. Although there is no requirement to seek the consent of the creditors of the parties involved in the scheme of arrangement, the Grand Court typically seeks to ensure that the creditors have consented to the transfer of their liabilities to the surviving entity or that the scheme of arrangement does not otherwise materially adversely affect creditors’ interests. Furthermore, the court will only approve a scheme of arrangement if it is satisfied that:
We have been advisedliabilities imposed by our Cayman Islands counsel, Maples and Calder, thatthose provisions are penal in nature. ln those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will —recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment byof a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given — recognize and enforceprovided certain conditions are met. For a foreign money judgment of a court of competent jurisdiction ifto be enforced in the Cayman Islands, such judgment ismust be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, is not inconsistent with a Cayman Islands judgment in respect of the same matters, and was notmatter, impeachable on the grounds of fraud, or obtained in a manner, and is notor be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands. There is doubt, however, asIslands (awards of punitive or multiple damages may well be held to whether the Grand Court of thebe contrary to public policy). A Cayman Islands will (1) recognize or enforce judgments of U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States or any state of the United States, or (2) in original actions brought in the Cayman Islands, impose liabilities predicated upon the civil liability provisions of the federal securities laws of the United States or any state of the United States, on the grounds that such provisions are penal in nature.
The Grand Court of the Cayman Islandscourt may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
Short sellers and others who raise allegations regarding the legality
Item 1B. | Unresolv ed Staff Comments |
Item 2. | Pr operties |
Item 3. | Legal Proceedings |
Item 4. | Mine Saf ety Disclosures |
Quarter Ended |
| High |
|
| Low |
| ||
March 31, 2017 |
| $ | 62.50 |
|
| $ | 48.20 |
|
June 30, 2017 |
| $ | 74.49 |
|
| $ | 56.81 |
|
September 30, 2017 |
| $ | 73.99 |
|
| $ | 60.71 |
|
December 31, 2017 |
| $ | 79.64 |
|
| $ | 64.25 |
|
Quarter Ended |
| High |
|
| Low |
| ||
March 31, 2016 |
| $ | 63.59 |
|
| $ | 42.26 |
|
June 30, 2016 |
| $ | 66.26 |
|
| $ | 54.00 |
|
September 30, 2016 |
| $ | 72.22 |
|
| $ | 57.05 |
|
December 31, 2016 |
| $ | 64.38 |
|
| $ | 47.62 |
|
The market price of our common shares is subject to fluctuations in response to variations in our quarterly operating results, general trends in the market for our products and product candidates, economic and currency exchange issues in the foreign markets in which we operate as well as other factors, many of which are not within our control. In addition, broad market fluctuations, as well as general economic, business and political conditions may adversely affect the market for our common shares, regardless of our actual or projected performance.
| December 31, |
| |||||||||||||||||||||
| 2012 |
|
| 2013 |
|
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
| ||||||
Herbalife Ltd. | $ | 100.00 |
|
| $ | 244.62 |
|
| $ | 117.71 |
|
| $ | 167.42 |
|
| $ | 150.31 |
|
| $ | 211.44 |
|
S&P 500 Index | $ | 100.00 |
|
| $ | 132.39 |
|
| $ | 150.51 |
|
| $ | 152.59 |
|
| $ | 170.84 |
|
| $ | 208.14 |
|
Peer Index | $ | 100.00 |
|
| $ | 157.29 |
|
| $ | 88.17 |
|
| $ | 69.93 |
|
| $ | 72.57 |
|
| $ | 93.73 |
|
December 31, | ||||||||||||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||||||||||||||||||
Herbalife Nutrition Ltd. | $ | 100.00 | $ | 89.78 | $ | 126.30 | $ | 219.88 | $ | 177.81 | $ | 179.22 | ||||||||||||||||||
S&P 500 Index | $ | 100.00 | $ | 111.96 | $ | 136.40 | $ | 130.42 | $ | 171.49 | $ | 203.04 | ||||||||||||||||||
Old Peer Group(1) | $ | 100.00 | $ | 118.17 | $ | 120.63 | $ | 87.26 | $ | 113.41 | $ | 127.94 | ||||||||||||||||||
New Peer Group(2) | $ | 100.00 | $ | 106.12 | $ | 125.05 | $ | 132.58 | $ | 95.97 | $ | 118.65 |
(1) | The Old Peer Group consists of Avon Products, Inc., Conagra Brands, Inc., The Hain Celestial Group, Inc., Nu Skin Enterprises, Inc., Post Holdings, Inc., Tupperware Brands Corporation, and USANA Health Sciences, Inc. |
(2) | The New Peer Group consists of Conagra Brands, Inc., The Hain Celestial Group, Inc., Nu Skin Enterprises, Inc., Post Holdings, Inc., Tupperware Brands Corporation, and USANA Health Sciences, Inc. |
On April 28, 2014, we announced that our board of directors approved terminating our quarterly
Information with Respect to Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth as of December 31, 2017, information with respect to (a) number of securities to be issued upon exercise of outstanding options, warrants and rights, (b) the weighted-average exercise price of outstanding options, warrants and rights and (c) the number of securities remaining available for future issuance under equity compensation plans.
|
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (3) |
|
| Weighted Average Exercise Price of Outstanding Options, Warrants and Rights |
|
| Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities in Column (a))(2) |
| |||
|
| (a) |
|
| (b) |
|
| (c) |
| |||
Equity compensation plans approved by security holders(1) |
|
| 3,454,310 |
|
| $ | 46.72 |
|
|
| 5,890,406 |
|
Equity compensation plans not approved by security holders |
|
| — |
|
| $ | — |
|
|
| — |
|
Total |
|
| 3,454,310 |
|
| $ | 46.72 |
|
|
| 5,890,406 |
|
|
|
|
|
|
|
See Note 15,
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| ||||
October 1 — October 31 |
|
| 6,732,300 |
|
| $ | 68.00 |
|
|
| 6,732,300 |
|
| $ | 743,021,619 |
|
November 1 — November 30 |
|
| 143,669 |
|
| $ | 67.01 |
|
|
| 143,669 |
|
| $ | 733,394,288 |
|
December 1 — December 31 |
|
| 290,461 |
|
| $ | 68.19 |
|
|
| 290,461 |
|
| $ | 713,588,699 |
|
|
|
| 7,166,430 |
|
| $ | 67.99 |
|
|
| 7,166,430 |
|
| $ | 713,588,699 |
|
Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||
October 1 — October 31 | — | $ | — | — | $ | 682,860,678 | ||||||||||||||
November 1 — November 30 | 947,800 | $ | 47.57 | 947,800 | $ | 637,778,537 | ||||||||||||||
December 1 — December 31 | 604,458 | $ | 49.43 | 604,458 | $ | 607,900,292 | ||||||||||||||
1,552,258 | $ | 48.29 | 1,552,258 | $ | 607,900,292 | |||||||||||||||
Item 6. | Selecte d Financial Data |
|
| Year Ended December 31, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
|
| (In millions except per share data) |
| |||||||||||||||||
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 4,427.7 |
|
| $ | 4,488.4 |
|
| $ | 4,469.0 |
|
| $ | 4,958.6 |
|
| $ | 4,825.3 |
|
Cost of sales |
|
| 848.6 |
|
|
| 854.6 |
|
|
| 856.0 |
|
|
| 982.9 |
|
|
| 963.4 |
|
Gross profit |
|
| 3,579.1 |
|
|
| 3,633.8 |
|
|
| 3,613.0 |
|
|
| 3,975.7 |
|
|
| 3,861.9 |
|
Royalty overrides |
|
| 1,254.2 |
|
|
| 1,272.6 |
|
|
| 1,251.4 |
|
|
| 1,471.1 |
|
|
| 1,497.5 |
|
Selling, general and administrative expenses |
|
| 1,758.6 |
|
|
| 1,966.9 |
|
|
| 1,784.5 |
|
|
| 1,991.1 |
|
|
| 1,629.1 |
|
Other operating income |
|
| (50.8 | ) |
|
| (63.8 | ) |
|
| (6.5 | ) |
|
| — |
|
|
| — |
|
Operating income |
|
| 617.1 |
|
|
| 458.1 |
|
|
| 583.6 |
|
|
| 513.5 |
|
|
| 735.3 |
|
Interest expense, net |
|
| 146.3 |
|
|
| 93.4 |
|
|
| 94.9 |
|
|
| 79.2 |
|
|
| 18.6 |
|
Other (income) expense, net |
|
| (0.4 | ) |
|
| — |
|
|
| 2.3 |
|
|
| 13.0 |
|
|
| — |
|
Income before income taxes |
|
| 471.2 |
|
|
| 364.7 |
|
|
| 486.4 |
|
|
| 421.3 |
|
|
| 716.7 |
|
Income taxes(1) |
|
| 257.3 |
|
|
| 104.7 |
|
|
| 147.3 |
|
|
| 112.6 |
|
|
| 189.2 |
|
Net income |
| $ | 213.9 |
|
| $ | 260.0 |
|
| $ | 339.1 |
|
| $ | 308.7 |
|
| $ | 527.5 |
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 2.70 |
|
| $ | 3.13 |
|
| $ | 4.11 |
|
| $ | 3.58 |
|
| $ | 5.14 |
|
Diluted |
| $ | 2.58 |
|
| $ | 3.02 |
|
| $ | 3.97 |
|
| $ | 3.40 |
|
| $ | 4.91 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 79.2 |
|
|
| 83.0 |
|
|
| 82.6 |
|
|
| 86.3 |
|
|
| 102.6 |
|
Diluted |
|
| 82.9 |
|
|
| 86.1 |
|
|
| 85.3 |
|
|
| 90.8 |
|
|
| 107.4 |
|
Other Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail value(2) |
| $ | 7,058.5 |
|
| $ | 7,119.8 |
|
| $ | 6,994.4 |
|
| $ | 7,843.0 |
|
| $ | 7,514.0 |
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
| 590.8 |
|
|
| 367.3 |
|
|
| 628.7 |
|
|
| 511.4 |
|
|
| 772.9 |
|
Investing activities |
|
| (97.8 | ) |
|
| (141.3 | ) |
|
| (73.4 | ) |
|
| (201.3 | ) |
|
| (150.8 | ) |
Financing activities |
|
| (85.2 | ) |
|
| (252.3 | ) |
|
| (250.0 | ) |
|
| (389.5 | ) |
|
| 30.7 |
|
Depreciation and amortization |
|
| 99.8 |
|
|
| 98.3 |
|
|
| 98.0 |
|
|
| 93.2 |
|
|
| 84.7 |
|
Capital expenditures(3) |
|
| 95.1 |
|
|
| 144.3 |
|
|
| 79.1 |
|
|
| 156.7 |
|
|
| 162.5 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 1,278.8 |
|
| $ | 844.0 |
|
| $ | 889.8 |
|
| $ | 645.4 |
|
| $ | 973.0 |
|
Receivables, net |
|
| 93.3 |
|
|
| 70.3 |
|
|
| 69.9 |
|
|
| 83.6 |
|
|
| 100.3 |
|
Inventories |
|
| 341.2 |
|
|
| 371.3 |
|
|
| 332.0 |
|
|
| 377.7 |
|
|
| 351.2 |
|
Total working capital |
|
| 953.5 |
|
|
| 671.0 |
|
|
| 541.9 |
|
|
| 518.6 |
|
|
| 720.8 |
|
Total assets |
|
| 2,895.1 |
|
|
| 2,565.4 |
|
|
| 2,477.9 |
|
|
| 2,355.0 |
|
|
| 2,471.3 |
|
Total debt |
|
| 2,268.1 |
|
|
| 1,447.9 |
|
|
| 1,622.0 |
|
|
| 1,791.8 |
|
|
| 928.9 |
|
Shareholders’ (deficit) equity(4) |
|
| (334.7 | ) |
|
| 196.3 |
|
|
| (53.5 | ) |
|
| (334.4 | ) |
|
| 551.4 |
|
Cash dividends per common share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.30 |
|
|
| 1.20 |
|
Year Ended December 31, | ||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
(in millions, except per share amounts) | ||||||||||||||||||||
Income statement data: | ||||||||||||||||||||
Net sales | $ | 5,541.8 | $ | 4,877.1 | $ | 4,891.8 | $ | 4,427.7 | $ | 4,488.4 | ||||||||||
Cost of sales | 1,150.6 | 958.0 | 919.3 | 848.6 | 854.6 | |||||||||||||||
Gross profit | 4,391.2 | 3,919.1 | 3,972.5 | 3,579.1 | 3,633.8 | |||||||||||||||
Royalty overrides | 1,690.1 | 1,448.2 | 1,364.0 | 1,254.2 | 1,272.6 | |||||||||||||||
Selling, general, and administrative expenses | 2,075.0 | 1,940.3 | 1,955.2 | 1,758.6 | 1,966.9 | |||||||||||||||
Other operating income | (14.5 | ) | (37.5 | ) | (29.8 | ) | (50.8 | ) | (63.8 | ) | ||||||||||
Operating income | 640.6 | 568.1 | 683.1 | 617.1 | 458.1 | |||||||||||||||
Interest expense, net | 124.2 | 132.4 | 161.6 | 146.3 | 93.4 | |||||||||||||||
Other expense (income), net | — | (15.7 | ) | 57.3 | (0.4 | ) | — | |||||||||||||
Income before income taxes | 516.4 | 451.4 | 464.2 | 471.2 | 364.7 | |||||||||||||||
Income taxes(1) | 143.8 | 140.4 | 167.6 | 257.3 | 104.7 | |||||||||||||||
Net income | $ | 372.6 | $ | 311.0 | $ | 296.6 | $ | 213.9 | $ | 260.0 | ||||||||||
Earnings per share: | ||||||||||||||||||||
Basic | $ | 2.83 | $ | 2.26 | $ | 2.12 | $ | 1.35 | $ | 1.57 | ||||||||||
Diluted | $ | 2.77 | $ | 2.20 | $ | 1.98 | $ | 1.29 | $ | 1.51 | ||||||||||
Weighted-average shares outstanding: | ||||||||||||||||||||
Basic | 131.5 | 137.4 | 140.2 | 158.5 | 166.1 | |||||||||||||||
Diluted | 134.5 | 141.6 | 149.5 | 165.7 | 172.2 | |||||||||||||||
Other financial data: | ||||||||||||||||||||
Net cash provided (used) by: | ||||||||||||||||||||
Operating activities | 628.6 | 457.5 | 648.4 | 590.8 | 367.3 | |||||||||||||||
Investing activities | (123.2 | ) | (108.0 | ) | (83.9 | ) | (95.2 | ) | (142.4 | ) | ||||||||||
Financing activities | (320.9 | ) | (713.0 | ) | (593.1 | ) | (85.2 | ) | (252.3 | ) | ||||||||||
Depreciation and amortization | 100.3 | 97.7 | 100.4 | 99.8 | 98.3 | |||||||||||||||
Capital expenditures(2) | 116.8 | 110.2 | 88.2 | 95.1 | 144.3 | |||||||||||||||
Balance sheet data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 1,045.4 | $ | 839.4 | $ | 1,198.9 | $ | 1,278.8 | $ | 844.0 | ||||||||||
Receivables, net of allowance for doubtful accounts | 83.3 | 79.7 | 70.5 | 93.3 | 70.3 | |||||||||||||||
Inventories | 501.4 | 436.2 | 381.8 | 341.2 | 371.3 | |||||||||||||||
Working capital | 648.5 | 523.8 | 216.2 | 953.5 | 671.0 | |||||||||||||||
Total assets | 3,076.1 | 2,678.6 | 2,789.8 | 2,895.1 | 2,565.4 | |||||||||||||||
Total debt | 2,428.4 | 1,803.0 | 2,453.8 | 2,268.1 | 1,447.9 | |||||||||||||||
Total shareholders’ (deficit) equity(3) | (856.1 | ) | (390.0 | ) | (723.4 | ) | (334.7 | ) | 196.3 | |||||||||||
Dividends declared per share | $ | — | $ | — | $ | — | $ | — | $ | — |
(1) | Income taxes for the Income Taxes Exhibits, Financial Statement Schedules Form 10-K. |
(2) |
|
Retail value data as a Non-GAAP measure is discussed in greater detail in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations. We discuss retail value because of its fundamental role in our systems, internal controls and operations, and its correlation to Member discounts and Royalty Overrides. In addition, retail value is a component of the financial reports we use to analyze our financial results because, among other things, it can provide additional detail and visibility into our net sales results on a Company-wide and a geographic region and product category basis.
The following represents the reconciliation of retail value to net sales for each of the periods set forth above:
|
| Year Ended December 31, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
|
| (In millions) |
| |||||||||||||||||
Retail value |
| $ | 7,058.5 |
|
| $ | 7,119.8 |
|
| $ | 6,994.4 |
|
| $ | 7,843.0 |
|
| $ | 7,514.0 |
|
Distributor allowance |
|
| (2,858.2 | ) |
|
| (2,875.6 | ) |
|
| (2,807.9 | ) |
|
| (3,275.8 | ) |
|
| (3,313.3 | ) |
Product sales |
|
| 4,200.3 |
|
|
| 4,244.2 |
|
|
| 4,186.5 |
|
|
| 4,567.2 |
|
|
| 4,200.7 |
|
Shipping & handling revenues |
|
| 227.4 |
|
|
| 244.2 |
|
|
| 282.5 |
|
|
| 391.4 |
|
|
| 624.6 |
|
Net sales |
| $ | 4,427.7 |
|
| $ | 4,488.4 |
|
| $ | 4,469.0 |
|
| $ | 4,958.6 |
|
| $ | 4,825.3 |
|
| Includes accrued capital expenditures. See the Consolidated Exhibits, Financial Statement Schedules 10-K for capital expenditures paid in cash during the years ended December 31, |
| During the year ended December 31, 2020, we did not pay any dividends and we repurchased 18.4 million of our common shares under our share repurchase program at an aggregate cost of approximately $892.1 million through open-market purchases and the modified Dutch auction tender offer that closed in August 2020. During the year ended December 31, 2019, we did not pay any dividends or repurchase any of our common shares through open market purchases. During the year ended December 31, 2018, we did not pay any dividends and we repurchased 11.4 million of our common shares under our share repurchase program at an aggregate cost of approximately $600.3 million through open-market purchases by an indirect wholly-owned subsidiary and the modified Dutch auction tender offer that closed in May 2018. During the year ended December 31, 2017, we did not pay any dividends and we repurchased non-transferable contractual contingent value right, or CVR, through Management’s Discussion and Analysis of Financial Condition and Results of Operations Shareholders’ Exhibits, Financial Statement Schedules Form 10-K. |
Item 7. |
Management ’ s Discussion and Analysis o f Financial Condition and Results of Operations |
continued success.
Industry-wide factors that affect us and our competitors include the global obesity epidemic, the aging of the worldwide population and rising public health care costs, which are driving demand for weight management, nutrition and wellness-related products along with the global increase in under employment and unemployment which can affect the recruitment and retention of Members seeking additional income opportunities.
We report revenue from our six regions:
North America;
Mexico;
China
Pandemic
Currently, the
|
| For the Year Ended December 31, |
| |||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| % Change |
|
| 2016 |
|
| 2015 |
|
| % Change |
| ||||||
|
| (Volume Points in millions) |
| |||||||||||||||||||||
North America |
|
| 1,099.0 |
|
|
| 1,248.6 |
|
|
| (12.0 | )% |
|
| 1,248.6 |
|
|
| 1,156.0 |
|
|
| 8.0 | % |
Mexico |
|
| 875.4 |
|
|
| 919.8 |
|
|
| (4.8 | )% |
|
| 919.8 |
|
|
| 842.9 |
|
|
| 9.1 | % |
South & Central America |
|
| 593.9 |
|
|
| 663.0 |
|
|
| (10.4 | )% |
|
| 663.0 |
|
|
| 768.4 |
|
|
| (13.7 | )% |
EMEA |
|
| 1,088.5 |
|
|
| 1,049.6 |
|
|
| 3.7 | % |
|
| 1,049.6 |
|
|
| 922.3 |
|
|
| 13.8 | % |
Asia Pacific (excluding China) |
|
| 1,089.2 |
|
|
| 1,076.4 |
|
|
| 1.2 | % |
|
| 1,076.4 |
|
|
| 1,064.5 |
|
|
| 1.1 | % |
China |
|
| 633.4 |
|
|
| 624.7 |
|
|
| 1.4 | % |
|
| 624.7 |
|
|
| 581.6 |
|
|
| 7.4 | % |
Worldwide |
|
| 5,379.4 |
|
|
| 5,582.1 |
|
|
| (3.6 | )% |
|
| 5,582.1 |
|
|
| 5,335.7 |
|
|
| 4.6 | % |
Year Ended December 31, | ||||||||||||||||||||||||
2020 | 2019 | % Change | 2019 | 2018 | % Change | |||||||||||||||||||
(Volume Points in millions) | ||||||||||||||||||||||||
North America(1) | 1,735.0 | 1,317.0 | 31.7 | % | 1,317.0 | 1,229.4 | 7.1 | % | ||||||||||||||||
Mexico | 879.7 | 882.8 | (0.4 | )% | 882.8 | 920.5 | (4.1 | )% | ||||||||||||||||
South and Central America(2) | 535.2 | 516.5 | 3.6 | % | 516.5 | 561.6 | (8.0 | )% | ||||||||||||||||
EMEA | 1,562.5 | 1,290.1 | 21.1 | % | 1,290.1 | 1,219.9 | 5.8 | % | ||||||||||||||||
Asia Pacific | 1,690.2 | 1,565.0 | 8.0 | % | 1,565.0 | 1,291.4 | 21.2 | % | ||||||||||||||||
China | 523.8 | 497.2 | 5.3 | % | 497.2 | 669.2 | (25.7 | )% | ||||||||||||||||
Worldwide(3) | 6,926.4 | 6,068.6 | 14.1 | % | 6,068.6 | 5,892.0 | 3.0 | % | ||||||||||||||||
(1) | Excluding Volume Point adjustments made during 2018 for certain products in certain markets, the percent change for the year ended December 31, 2019 would have been an increase of 6.2%. |
(2) | Excluding Volume Point adjustments made during 2018 for certain products in certain markets, the percent change for the year ended December 31, 2019 would have been a decrease of 8.6%. |
(3) | Excluding the Volume Point adjustments made during 2018 for certain products in certain markets in the North America and South and Central America regions noted above, the percent change for the year ended December 31, 2019 would have been an increase of 2.8%. |
Region
Total distributor allowances for 2017, 2016, and 2015 were 40.5%, 40.4%, and 40.1% of retail value, respectively. Distributor allowances and Marketing Plan payouts generally utilize 90% to 95% of suggested retail price, depending on the product and market,less discounts referred to which we apply discounts of up to 50% for as “allowances and payout rates of up to 15% for royalty overrides, up to 7% for production bonuses, and approximately 1% for the Mark Hughes bonus. Distributor allowances as a percentage of retail value may vary by country depending upon regulatory restrictions that limit or otherwise restrict distributor allowances. We also offer reduced distributor allowances with respect to certain products worldwide.allowanceTherefore,Distributor allowances may also vary by country depending upon regulatory restrictions that limit or otherwise restrict distributor allowances. We also offer reduced distributor allowances with respect to certain products worldwide.
“Netare not considered as separate revenues.
We do not have visibility into allcontinue to extend the segmentation of the sales fromour distributors and preferred members to additional geographic markets and consider other pricing simplification efforts for our Members, to their customers, but such a figure would differ from our reported “retail value” by factors including (a) the amountutility of, product purchased by our Members for their own personal consumption and (b) prices charged by our Members to their customers other than our suggested retail prices. We discusstherefore management’s reliance on, total retail value becausehas decreased and we are discontinuing the disclosure of its fundamental role in our systems, internal controls and operations, and its correlation to Member discounts and Royalty Overrides. In addition, this
information.
time.royaltyRoyalty override percentage may vary over time and from the percentages noted above.
warehouses in Mexico during September 2017.
|
| Year Ended December 31, 2017 |
|
| Year Ended December 31, 2016 |
|
| Year Ended December 31, 2015 |
| |||
Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of sales |
|
| 19.2 |
|
|
| 19.0 |
|
|
| 19.1 |
|
Gross profit |
|
| 80.8 |
|
|
| 81.0 |
|
|
| 80.9 |
|
Royalty overrides(1) |
|
| 28.3 |
|
|
| 28.4 |
|
|
| 28.0 |
|
Selling, general and administrative expenses(1) |
|
| 39.7 |
|
|
| 43.8 |
|
|
| 39.9 |
|
Other operating income |
|
| (1.1 | ) |
|
| (1.4 | ) |
|
| (0.1 | ) |
Operating income |
|
| 13.9 |
|
|
| 10.2 |
|
|
| 13.1 |
|
Interest expense |
|
| 3.6 |
|
|
| 2.2 |
|
|
| 2.2 |
|
Interest income |
|
| 0.3 |
|
|
| 0.1 |
|
|
| 0.1 |
|
Other expense, net |
|
| — |
|
|
| — |
|
|
| 0.1 |
|
Income before income taxes |
|
| 10.6 |
|
|
| 8.1 |
|
|
| 10.9 |
|
Income taxes |
|
| 5.8 |
|
|
| 2.3 |
|
|
| 3.3 |
|
Net income |
|
| 4.8 | % |
|
| 5.8 | % |
|
| 7.6 | % |
Year Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Operations: | ||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of sales | 20.8 | 19.6 | 18.8 | |||||||||
Gross profit | 79.2 | 80.4 | 81.2 | |||||||||
Royalty overrides(1) | 30.5 | 29.7 | 27.9 | |||||||||
Selling, general, and administrative expenses(1) | 37.4 | 39.8 | 39.9 | |||||||||
Other operating income | (0.3 | ) | (0.8 | ) | (0.6 | ) | ||||||
Operating income | 11.6 | 11.7 | 14.0 | |||||||||
Interest expense | 2.5 | 3.1 | 3.7 | |||||||||
Interest income | 0.2 | 0.4 | 0.4 | |||||||||
Other expense (income), net | — | (0.3 | ) | 1.2 | ||||||||
Income before income taxes | 9.3 | 9.3 | 9.5 | |||||||||
Income taxes | 2.6 | 2.9 | 3.4 | |||||||||
Net income | 6.7 | % | 6.4 | % | 6.1 | % | ||||||
(1) | Service fees to our independent service providers in China are included in selling, general, and administrative expenses while Member compensation for all other countries is included in |
promotion efforts.
each geographic region and individual market.
2020. Net sales increased $664.7 million, or 13.6% ($664.6 million, or 13.6% excluding Venezuela), for the year ended December 31, 2017 decreased 1.4% to $4,427.7 million as compared to $4,488.4 million in 2016. In local currency, net sales for the year ended December 31, 2017 decreased 1.1%2020 as compared to the same period in 2016.2019. In local currency, net sales increased 17.5% (16.6% excluding Venezuela) for the year ended December 31, 2020 as compared to the same period in 2019. The decrease13.6% increase in net sales for the year ended December 31, 20172020 was primarily the result of a decreasedriven by an increase in sales volume, as indicated by a decrease14.1% increase in Volume Points, and an unfavorable change in country sales mix, which reduced net sales bya 3.6% and 1.1%, respectively, partially offset by thefavorable impact of price increases which increased(2.7% favorable impact excluding Venezuela), partially offset by a 3.8% unfavorable impact of fluctuations in foreign currency rates (2.9% unfavorable impact excluding Venezuela). As described in the
amendment of our 2018 Credit Facility.
Net incomeStatements included in Part IV, Item 15,
China reported contribution margin of $790.7 million for the year ended December 31, 2017. Contribution margin for China was relatively flat compared to the same period in 2016 and was primarily the result of price increases, which increased contribution margin by approximately 3.6%, partially offset by the unfavorable impact of fluctuations in foreign currency rates, which reduced contribution margin by approximately 2.9%.
volume increases.
The following chart reconciles retail value to net
|
| Year Ended December 31, |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
| Retail Value(1) |
|
| Distributor Allowance |
|
| Product Sales |
|
| Shipping & Handling Revenues |
|
| Net Sales |
|
| Retail Value(1) |
|
| Distributor Allowance |
|
| Product Sales |
|
| Shipping & Handling Revenues |
|
| Net Sales |
|
| Change in Net Sales |
| |||||||||||
|
| (Dollars in millions) |
| |||||||||||||||||||||||||||||||||||||||||
North America |
| $ | 1,400.8 |
|
| $ | (642.3 | ) |
| $ | 758.5 |
|
| $ | 81.7 |
|
| $ | 840.2 |
|
| $ | 1,587.0 |
|
| $ | (721.3 | ) |
| $ | 865.7 |
|
| $ | 90.0 |
|
| $ | 955.7 |
|
|
| (12.1 | )% |
Mexico |
|
| 762.8 |
|
|
| (346.9 | ) |
|
| 415.9 |
|
|
| 26.8 |
|
|
| 442.7 |
|
|
| 767.2 |
|
|
| (347.6 | ) |
|
| 419.6 |
|
|
| 27.0 |
|
|
| 446.6 |
|
|
| (0.9 | )% |
South & Central America |
|
| 827.1 |
|
|
| (385.0 | ) |
|
| 442.1 |
|
|
| 32.2 |
|
|
| 474.3 |
|
|
| 848.2 |
|
|
| (393.5 | ) |
|
| 454.7 |
|
|
| 34.0 |
|
|
| 488.7 |
|
|
| (2.9 | )% |
EMEA |
|
| 1,498.0 |
|
|
| (681.8 | ) |
|
| 816.2 |
|
|
| 52.5 |
|
|
| 868.7 |
|
|
| 1,398.9 |
|
|
| (633.9 | ) |
|
| 765.0 |
|
|
| 50.6 |
|
|
| 815.6 |
|
|
| 6.5 | % |
Asia Pacific |
|
| 1,565.3 |
|
|
| (679.0 | ) |
|
| 886.3 |
|
|
| 29.6 |
|
|
| 915.9 |
|
|
| 1,531.9 |
|
|
| (656.9 | ) |
|
| 875.0 |
|
|
| 38.0 |
|
|
| 913.0 |
|
|
| 0.3 | % |
China |
|
| 1,004.5 |
|
|
| (123.2 | ) |
|
| 881.3 |
|
|
| 4.6 |
|
|
| 885.9 |
|
|
| 986.6 |
|
|
| (122.4 | ) |
|
| 864.2 |
|
|
| 4.6 |
|
|
| 868.8 |
|
|
| 2.0 | % |
Worldwide |
| $ | 7,058.5 |
|
| $ | (2,858.2 | ) |
| $ | 4,200.3 |
|
| $ | 227.4 |
|
| $ | 4,427.7 |
|
| $ | 7,119.8 |
|
| $ | (2,875.6 | ) |
| $ | 4,244.2 |
|
| $ | 244.2 |
|
| $ | 4,488.4 |
|
|
| (1.4 | )% |
Year Ended December 31, | |||||||||||||||
2020 | 2019 | % Change | |||||||||||||
(Dollars in millions) | |||||||||||||||
North America | $ | 1,372.9 | $ | 1,025.5 | 33.9 | % | |||||||||
Mexico | 436.9 | 473.6 | (7.7 | )% | |||||||||||
South and Central America | 366.4 | 379.0 | (3.3 | )% | |||||||||||
EMEA | 1,208.3 | 998.0 | 21.1 | % | |||||||||||
Asia Pacific | 1,347.7 | 1,249.0 | 7.9 | % | |||||||||||
China | 809.6 | 752.0 | 7.7 | % | |||||||||||
Worldwide | $ | 5,541.8 | $ | 4,877.1 | 13.6 | % | |||||||||
|
|
As partPoints, partially offset by a 3.0% favorable impact of the Consent Order, we have implemented certain new procedures and enhanced certain existing procedures in the United States. price increases.
The Mexico region reported net sales of $442.7$366.4 million for the year ended December 31, 2017.2020. Net sales decreased $12.6 million, or 3.3% ($12.8 million, or 3.4% excluding Venezuela), for the year ended December 31, 2017 decreased $3.9 million, or 0.9%,2020 as compared to the same period in 2016.2019. In local currency, net sales increased 20.8% (9.1% excluding Venezuela) for the year ended December 31, 2017 increased 0.5%,2020 as compared to the same period in 2016.2019. The 0.9%3.3% decrease in net sales for the year ended December 31, 20172020 was primarily the resultdue to a 24.1% unfavorable impact of fluctuations in foreign currency exchange rates (12.5% unfavorable impact excluding Venezuela), partially offset by a decrease16.9% favorable impact of price increases (5.6% favorable impact excluding Venezuela) and an increase in sales volume, as indicated by a 4.8% decrease3.6% increase in Volume Points, and the effect of the strong U.S. dollar and the resulting impact of fluctuations in foreign currency rates, which reduced netPoints. The region saw a sales by approximately 1.3%. These reductions to net sales were partially offset by price increases which contributed approximately 5.2% to net sales.
We believe the Volume Point declinevolume increase for the year ended December 31, 2017, after an increase for 2016, was attributableversus the prior year led by Colombia and Chile, as markets adapted to a difficult economic environment marked by rising inflationpandemic conditions and a weaker peso, as well as the adverse impact during the third quarter of the damaging natural disaster in the greater Mexico City area. Following inception of our Member Activation Program, designed to enhance the quality of sales leaders, we have seen fewer new Members but a higher level of activity among those new Members.
South and Central America
The South and Central America region reported net sales of $474.3 million for the year ended December 31, 2017. Net sales decreased $14.4 million, or 2.9%, for the year ended December 31, 2017, as compared to the same period in 2016. In local currency, net sales increased 0.4% for the year ended December 31, 2017, as compared to the same period in 2016. Excluding Venezuela, which saw significant price increases in response to a highly inflationary environment, South and Central America local currency net sales decreased 6.0% for the year ended December 31, 2017.
The 2.9% decrease in net sales for the year ended December 31, 2017 was primarily the result of a decrease in sales volume, as indicated by a 10.4% decrease in Volume Points, and the effect of the strong U.S. dollar and the resulting impact of fluctuations in foreign currency rates, which reduced net sales by approximately 3.3%. These reductions to net sales were partially offset by price increases which increased net sales by approximately 10.7%. Volume declines have been widespread across the region for both market-specific factors and as Members in many markets continue to transition to sustainable, customer-oriented business practices. The effect of price increases on net sales for the region was largest for the Venezuela market.
In Brazil, the region’s largest market, net sales were $190.6 million for the year ended December 31, 2017. Net sales increased $0.8 million, or 0.4%, for the year ended December 31, 2017, as compared to the same period in 2016. In local currency, net sales decreased 7.7% for the year ended December 31, 2017, as compared to the same period in 2016. The fluctuation of foreign currency rates had a favorable impact of $15.3 million on net sales in Brazil for the year ended December 31, 2017. Marketing Plan changes intendedefforts to build more sustainable business for our Members through a focus on daily product consumption and retailing are takingtake hold following a lengthy transition period. In addition, wein certain markets in the region. The region is seeing success leveraging social media, utilizing cash prize promotions, and using the weight loss challenge DMO.
to Members’ and customers’ homes.
of our Members in certain markets of the region.
In response to pandemic conditions, we have temporarily shifted our operations to primarily online activities to mitigate the negative impacts of being unable to conduct
Net sales in Spain were $103.3 million for the year ended December 31, 2017. Net sales increased $4.5 million, or 4.6%, for the year ended December 31, 2017, as compared to the same period in 2016. In local currency, net sales in Spain increased 2.5% for the year ended December 31, 2017, as compared to the same period in 2016. The fluctuation of foreign currency rates had a favorable impact of $2.0 million on net sales in Spain for the year ended December 31, 2017. Product prices in Spain were increased 2% in July 2017. Spain has benefited from ongoing programs of promotions and sponsorships that have raised brand awareness through healthy active lifestyle.
Asia Pacific
The Asia Pacific region, which excludes China, reported net sales of $915.9 million for the year ended December 31, 2017. Net sales increased $2.9 million, or 0.3%, for the year ended December 31, 2017, as compared to the same period in 2016. In local currency, net sales decreased 0.9% for the year ended December 31, 2017, as compared to the same period in 2016. The 0.3%7.7% increase in net sales for the year ended December 31, 20172020 was primarily the resultdue to an
Net sales in India were $185.1 million for the year ended December 31, 2017. Net sales increased $17.2 million, or 10.2%, for the year ended December 31, 2017, as comparednot returned to the same periodlevels of
Net sales in South Korea were $136.8 million for the year ended December 31, 2017. Net sales decreased $41.0 million, or 23.1%, for the year ended December 31, 2017, asfourth quarter of 2020 compared to those of the same periodthird quarter of 2020. In addition to some macroeconomic challenges in 2016. In local currency, net sales decreased 24.9% for the year ended December 31, 2017, as comparedChina, we believe one factor contributing to these declines is a recent enhancement made to the same periodrequirements for our sales representatives in 2016. The fluctuation of foreign currency rates hadChina to be eligible to apply to become independent service providers. While we believe this change was a favorable impact of $3.3 million on net sales for the year ended December 31, 2017. The South Korea market has been impacted by Marketing Plan changes, including certain changes uniquecontributing factor to the market. We believe these changes and other efforts, including a Member Activation Program that has seen successdeclines in the market, support improved retailing opportunity.
Net sales in Indonesia were $133.0 million for the year ended December 31, 2017. Net sales increased $19.1 million, or 16.7%, for the year ended December 31, 2017, as compared to the same period in 2016. In local currency, net sales increased 17.4% for the year ended December 31, 2017, as compared to the same period in 2016. The fluctuation of foreign currency rates had an unfavorable impact of $0.8 million on net sales for the year ended December 31, 2017. The Indonesia market has continued to strengthen by focusing on a customer-based business and daily consumption through Nutrition Clubs, training activities, and new products. We have increased the number of product access points for the market, expanded a city-by-city training and promotion approach, and introduced a Member pack oriented toward business builders.
Net sales in Taiwan were $117.8 million for the year ended December 31, 2017. Net sales decreased $9.6 million, or 7.5%, for the year ended December 31, 2017, as compared to the same period in 2016. In local currency, net sales decreased 12.8% for the year ended December 31, 2017, as compared to the same period in 2016. The fluctuation of foreign currency rates had a favorable impact of $6.7 million on net sales for the year ended December 31, 2017. Taiwan sales have declined versus prior years as the market adjusts to and Members optimize programs and training intended to help Members establish customer-based, sustainable business approaches.
China
Net sales in China were $885.9 million for the year ended December 31, 2017. Net sales increased $17.1 million, or 2.0%, for the year ended December 31, 2017, as compared to the same period in 2016. In local currency, net sales increased 4.0% for the year ended December 31, 2017, as compared to the same period in 2016. The net sales increase for the year was the result of price increases effective April 2017, which increased net sales by approximately 3.3%, and an increase in sales volume, as indicated by a 1.4% increase in Volume Points, partially offset by the unfavorable impact of fluctuations in foreign currency rates, which reduced net sales by approximately 2.0%.
Although sales volume saw a slight increase for the year ended December 31, 2017,fourth quarter, we believe this enhancement will ultimately strengthen our business by improving the lower ratequality of increase in volume versus recent years is attributable to factors such as a reduction in the number of Nutrition Clubs as Members in some cases consolidated smaller clubs into larger, more commercialized clubs; government limitations on companies conducting commercial meetings ahead of the National Congress held this fall; and Member overemphasis on social media business methods over more traditional methods. We have introduced the Member Activation Program for new members, expanded our online ordering platform, added new products for the market, and renewed a branding campaign.
independent service providers.
|
| Year Ended December 31, |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
| Retail Value(2) |
|
| Distributor Allowance |
|
| Product Sales |
|
| Shipping & Handling Revenues |
|
| Net Sales |
|
| Retail Value(2) |
|
| Distributor Allowance |
|
| Product Sales |
|
| Shipping & Handling Revenues |
|
| Net Sales |
|
| % Change in Net Sales |
| |||||||||||
|
| (Dollars in millions) |
| |||||||||||||||||||||||||||||||||||||||||
Weight Management |
| $ | 4,593.6 |
|
| $ | (1,899.1 | ) |
| $ | 2,694.5 |
|
| $ | 148.0 |
|
| $ | 2,842.5 |
|
| $ | 4,621.5 |
|
| $ | (1,915.5 | ) |
| $ | 2,706.0 |
|
| $ | 158.5 |
|
| $ | 2,864.5 |
|
|
| (0.8 | )% |
Targeted Nutrition |
|
| 1,749.7 |
|
|
| (723.3 | ) |
|
| 1,026.4 |
|
|
| 56.4 |
|
|
| 1,082.8 |
|
|
| 1,714.7 |
|
|
| (710.7 | ) |
|
| 1,004.0 |
|
|
| 58.8 |
|
|
| 1,062.8 |
|
|
| 1.9 | % |
Energy, Sports and Fitness |
|
| 426.4 |
|
|
| (176.3 | ) |
|
| 250.1 |
|
|
| 13.7 |
|
|
| 263.8 |
|
|
| 432.9 |
|
|
| (179.4 | ) |
|
| 253.5 |
|
|
| 14.9 |
|
|
| 268.4 |
|
|
| (1.7 | )% |
Outer Nutrition |
|
| 151.7 |
|
|
| (62.7 | ) |
|
| 89.0 |
|
|
| 4.9 |
|
|
| 93.9 |
|
|
| 178.2 |
|
|
| (73.9 | ) |
|
| 104.3 |
|
|
| 6.1 |
|
|
| 110.4 |
|
|
| (14.9 | )% |
Literature, Promotional and Other(1) |
|
| 137.1 |
|
|
| 3.2 |
|
|
| 140.3 |
|
|
| 4.4 |
|
|
| 144.7 |
|
|
| 172.5 |
|
|
| 3.9 |
|
|
| 176.4 |
|
|
| 5.9 |
|
|
| 182.3 |
|
|
| (20.6 | )% |
Total |
| $ | 7,058.5 |
|
| $ | (2,858.2 | ) |
| $ | 4,200.3 |
|
| $ | 227.4 |
|
| $ | 4,427.7 |
|
| $ | 7,119.8 |
|
| $ | (2,875.6 | ) |
| $ | 4,244.2 |
|
| $ | 244.2 |
|
| $ | 4,488.4 |
|
|
| (1.4 | )% |
Year Ended December 31, | ||||||||||||
2020 | 2019 | % Change | ||||||||||
(Dollars in millions) | ||||||||||||
Weight Management | $ | 3,312.8 | $ | 3,012.5 | 10.0 | % | ||||||
Targeted Nutrition | 1,527.4 | 1,278.5 | 19.5 | % | ||||||||
Energy, Sports, and Fitness | 437.4 | 352.0 | 24.3 | % | ||||||||
Outer Nutrition | 111.3 | 97.3 | 14.4 | % | ||||||||
Literature, Promotional, and Other(1) | 152.9 | 136.8 | 11.8 | % | ||||||||
Total | $ | 5,541.8 | $ | 4,877.1 | 13.6 | % | ||||||
(1) | Product |
|
|
Royalty Overrides
Royalty Overrides were $1,254.2$1,448.2 million for the yearyears ended December 31, 2017, as compared to $1,272.6 million for the same period in 2016.2020 and 2019, respectively. Royalty Overrides as a percentage of net sales were 28.3% for the year ended December 31, 2017 as compared to 28.4% for the same period in 2016. Compensation to our independent service providers in China is included in selling, general and administrative expenses as opposed to royalty overrides where it is included for all other Members. Generally, royalty overrides as a percentage of net sales may vary slightly from period to period due to changes in the mix of products and countries because full royalty overrides are not paid on certain products and in certain countries.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $1,758.6 million for the year ended December 31, 2017, as compared to $1,966.9 million for the same period in 2016. Selling, general and administrative expenses as a percentage of net sales were 39.7% for the year ended December 31, 2017, as compared to 43.8% for the same period in 2016.
The decrease in selling, general and administrative expenses for the year ended December 31, 2017 was driven by the $203.0 million regulatory settlements in 2016; $11.2 million in lower professional fees primarily from lower expenses related to allegations raised by a hedge fund manager and lower expenses related to the recovery of costs from KPMG associated with the re-audit of our 2010 to 2012 financial statements; $9.5 million in lower Member promotion and event costs; $9.2 million in lower travel expenses due to cost control initiatives; and $9.1 million in lower advertising and sponsorship expenses; partially offset by $25.7 million in higher labor and employee benefit costs and $12.4 million in higher service fees to China independent service providers related to sales growth in China.
In late 2012, a hedge fund manager publicly raised allegations regarding the legality of our network marketing program and announced that the hedge fund manager had taken a significant short position regarding our common shares, leading to intense public scrutiny and significant stock price volatility. We have engaged legal and advisory services firms to assist with responding to the allegations and to perform other related services in connection to these events. For the year ended December 31, 2017, we recorded approximately $5.0 million of expenses related to this matter, of which approximately $3.2 million was related to legal, advisory and other professional service fees. For the year ended December 31, 2016, we recorded approximately $12.1 million of expenses related to this matter, of which approximately $9.5 million was related to legal, advisory and other professional service fees.
Other Operating Income
Other operating income was $50.8 million for the year ended December 31, 2017, as compared to $63.8 million for the same period in 2016. The decrease in other operating income was due to the arbitration award received in 2016 in connection with the re-audit of our 2010 to 2012 financial statements after the resignation of KPMG as our independent registered public accounting firm (See Note 2, Basis of Presentation, to the Consolidated Financial Statements for further discussion); partially offset by an increase in government grant income related to China.
Net interest expense is as follows:
Net Interest Expense |
| Year Ended December 31, 2017 |
|
| Year Ended December 31, 2016 |
| ||
|
| (Dollars in millions) |
| |||||
Interest expense |
| $ | 160.8 |
|
| $ | 99.3 |
|
Interest income |
|
| (14.5 | ) |
|
| (5.9 | ) |
Net Interest Expense |
| $ | 146.3 |
|
| $ | 93.4 |
|
The increase in net interest expense for the year ended December 31, 2017, as compared to the same period in 2016, was primarily due to the increase in our interest expense due to higher interest rates and increased borrowing amounts relating to our new $1.45 billion senior secured credit facility, which includes a $1.3 billion term loan B, that was entered into on February 15, 2017 as discussed further below in Liquidity and Capital Resources. These increases were partially offset by higher interest income resulting from higher cash balances mainly due to the proceeds of the new term loan B.
Other (Income) Expense, Net
The $0.4 million of other income for the year ended December 31, 2017 relates to the gain on the revaluation of the CVR provided to the participants of the modified Dutch auction tender offer that closed in October 2017 (See Note 8, Shareholders’ (Deficit) Equity, to the Consolidated Financial Statements).
Income Taxes
Income taxes were $257.3 million for the year ended December 31, 2017, as compared to $104.7 million for the same period in 2016. As a percentage of pre-tax income, the effective income tax rate was 54.6% for the year ended December 31, 2017, as compared to 28.7% for the same period in 2016. The increase to the effective tax rate for the year ended December 31, 2017, as compared to the same period in 2016, is primarily due to the establishment of a valuation allowance against U.S. foreign tax credits. See Note 12, Income Taxes, to the Consolidated Financial Statements for additional discussion.
Financial Results for the year ended December 31, 2016 compared to the year ended December 31, 2015
Net sales for the year ended December 31, 2016 were relatively flat at $4,488.4 million compared to $4,469.0 million in 2015. In local currency, net sales for the year ended December 31, 2016 increased 6.3% as compared to the same period in 2015. The slight increase in net sales for the year ended December 31, 2016 was primarily the result of an increase in sales volume, as indicated by an increase in Volume Points, and the impact of price increases which increased net sales by approximately 4.6% and 2.2%, respectively. These increases were partially offset by the effect of the strong U.S. dollar and the resulting fluctuation in foreign currency rates which reduced net sales by approximately 5.8%.
Net income for the year ended December 31, 2016 decreased 23.3% to $260.0 million, or $3.02 per diluted share, compared to $339.1 million, or $3.97 per diluted share, for the same period in 2015. The decrease for the year ended December 31, 2016 was primarily due to the $203.0 million regulatory settlements; partially offset by the net sales growth as discussed above; $27.7 million in higher government grant income in China; $29.7 million arbitration award related to the re-audit; $23.3 million in lower foreign exchange losses primarily related to the remeasurement of our Venezuela Bolivar-denominated assets and liabilities described below; and lower income taxes.
Net income for the year ended December 31, 2016 included a $203.0 million pre-tax unfavorable impact ($133.0 million post-tax) related to regulatory settlements; a $34.2 million pre-tax favorable impact ($24.3 million post-tax) of government grant income in China; a $29.7 million pre-tax favorable impact ($25.8 million post-tax) related to the arbitration award in connection with the re-audit; a $45.1 million unfavorable impact of non-cash interest expense related to the Convertible Notes and the Forward Transactions (See Note 4, Long-Term Debt, to the Consolidated Financial Statements); a $16.3 million pre-tax unfavorable impact ($10.8 million post-tax) from expenses related to regulatory inquiries; a $12.1 million pre-tax unfavorable impact ($9.0 million post-tax) related to legal, advisory services and other expenses for our response to allegations and other negative information put forward in the marketplace by a hedge fund manager which started in late 2012 (See Selling, General and Administrative Expenses below for further discussion); a $3.6 million pre-tax unfavorable impact ($2.6 million post-tax) related to expenses incurred for the recovery of costs associated with the re-audit of our 2010 to 2012 financial statements after the resignation of KPMG as our independent registered public accounting firm; and a $10.7 million pre-tax unfavorable impact ($7.1 million post-tax) related to the implementation of the Consent Order, comprised of $9.0 million of legal, advisory, and other expenses and $1.7 million of product discounts related to preferred member conversions.
Net income for the year ended December 31, 2015 included a $36.9 million pre-tax unfavorable impact ($23.9 million post-tax), comprised of $32.9 million foreign exchange losses related to the remeasurement of Venezuela Bolivar-denominated assets and liabilities at the SICAD II and SIMADI rates, $1.7 million of Venezuela inventory write downs, and a $2.3 million impairment loss on Venezuela bonds; $5.6 million pre-tax unfavorable impact ($3.8 million post-tax) of financing costs from transactions to convert Bolivars to U.S. dollars in 2015; $7.5 million pre-tax favorable impact from foreign exchange gain ($8.3 million post-tax) resulting from Euro/U.S. dollar exposure primarily related to intercompany balances; a $18.7 million pre-tax unfavorable impact ($13.8 million post-tax) related to legal, advisory services and other expenses for our response to allegations and other negative information put forward in the marketplace by a hedge fund manager which started in late 2012 (See Selling, General and Administrative Expenses below for further discussion); a $21.4 million pre-tax unfavorable impact ($14.2 million post-tax) from expenses related to regulatory inquiries; a $1.9 million pre-tax favorable impact ($1.2 million post-tax) related to a reduction in the legal reserve for the Bostick case in 2014; a $3.1 million pre-tax favorable impact ($2.0 million post-tax) related to the recovery of a previously impaired defective manufacturing equipment from the vendor; a $42.2 million unfavorable impact of non-cash interest expense related to the Convertible Notes and the Forward Transactions (See Note 4, Long-Term Debt, to the Consolidated Financial Statements and Liquidity and Capital Resources — Share Repurchases below for further discussion); and a $2.0 million pre-tax unfavorable impact ($1.3 million post-tax) related to expenses incurred for the recovery of costs associated with the re-audit of our 2010 to 2012 financial statements after the resignation of KPMG as our independent registered public accounting firm.
Reporting Segment Results
We aggregate our operating segments, excluding China, into a reporting segment, or the Primary Reporting Segment. The Primary Reporting Segment includes the North America, Mexico, South & Central America, EMEA, and Asia Pacific regions. China has been identified as a separate reporting segment as it does not meet the criteria for aggregation. See Note 10, Segment Information, to the Consolidated Financial Statements for further discussion of our reporting segments. See below for discussions of net sales and contribution margin by our reporting segments.
Net Sales by Reporting Segment
The Primary Reporting Segment reported net sales of $3,619.6 million for the year ended December 31, 2016. Net sales for the Primary Reporting Segment decreased $3.2 million, or 0.1%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales increased 5.7% for the year ended December 31, 2016 as compared to the same period in 2015 for the Primary Reporting Segment. The slight decrease in net sales for the year ended December 31, 2016 was primarily the result of the strong U.S. dollar and the resulting impact of fluctuations in foreign currency rates and an unfavorable change in country sales mix resulting from a lower percentage of our sales volume coming from markets with higher prices which reduced net sales by approximately 5.8% and 1.1%, respectively, partially offset by an increase in sales volume, as indicated by an increase in Volume Points and price increases which increased net sales by approximately 4.3% and 2.7%, respectively.
For a discussion of China’s net sales for the year ended December 31, 2016, as compared to the same period in 2015, see the China section of the Sales by Geographic Region below.
Contribution Margin by Reporting Segment
As discussed above under “Presentation,” contribution margin consists of net sales less cost of sales and royalty overrides. The Primary Reporting Segment reported contribution margin of $1,571.9 million for the year ended December 31, 2016. Contribution margin for the Primary Reporting Segment decreased $26.9 million, or 1.7%, for the year ended December 31, 2016, as compared to the same period in 2015. The 1.7% decrease for the year ended December 31, 2016 was primarily the result of fluctuations in the foreign currency rates which reduced contribution margin by approximately 10.1%, partially offset by an increase in volume, as indicated by an increase in Volume Points, and the favorable impact of price increases, which increased contribution margin by approximately 4.9% and 4.2%, respectively.
China reported contribution margin of $789.3 million for the year ended December 31, 2016. Contribution margin for China increased $26.5 million, or 3.5%, for the year ended December 31, 2016, as compared to the same period in 2015. The increase for the year ended December 31, 2016 was primarily the result of a volume increase, as indicated by an increase in Volume Points, and product mix which increased contribution margin by approximately 7.3% and 1.1%, respectively, partially offset by the unfavorable impact of fluctuations in foreign currency rates, which reduced net sales by approximately 5.5%.
Sales by Geographic Region
The following chart reconciles retail value to net sales by geographic region:
|
| Year Ended December 31, |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
|
| 2016 |
|
| 2015 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
| Retail Value(1) |
|
| Distributor Allowance |
|
| Product Sales |
|
| Shipping & Handling Revenues |
|
| Net Sales |
|
| Retail Value(1) |
|
| Distributor Allowance |
|
| Product Sales |
|
| Shipping & Handling Revenues |
|
| Net Sales |
|
| Change in Net Sales |
| |||||||||||
|
| (Dollars in millions) |
| |||||||||||||||||||||||||||||||||||||||||
North America |
| $ | 1,587.0 |
|
| $ | (721.3 | ) |
| $ | 865.7 |
|
| $ | 90.0 |
|
| $ | 955.7 |
|
| $ | 1,455.0 |
|
| $ | (658.2 | ) |
| $ | 796.8 |
|
| $ | 82.7 |
|
| $ | 879.5 |
|
|
| 8.7 | % |
Mexico |
|
| 767.2 |
|
|
| (347.6 | ) |
|
| 419.6 |
|
|
| 27.0 |
|
|
| 446.6 |
|
|
| 822.5 |
|
|
| (370.6 | ) |
|
| 451.9 |
|
|
| 28.0 |
|
|
| 479.9 |
|
|
| (6.9 | )% |
South & Central America |
|
| 848.2 |
|
|
| (393.5 | ) |
|
| 454.7 |
|
|
| 34.0 |
|
|
| 488.7 |
|
|
| 954.4 |
|
|
| (438.2 | ) |
|
| 516.2 |
|
|
| 53.5 |
|
|
| 569.7 |
|
|
| (14.2 | )% |
EMEA |
|
| 1,398.9 |
|
|
| (633.9 | ) |
|
| 765.0 |
|
|
| 50.6 |
|
|
| 815.6 |
|
|
| 1,296.6 |
|
|
| (588.3 | ) |
|
| 708.3 |
|
|
| 46.8 |
|
|
| 755.1 |
|
|
| 8.0 | % |
Asia Pacific |
|
| 1,531.9 |
|
|
| (656.9 | ) |
|
| 875.0 |
|
|
| 38.0 |
|
|
| 913.0 |
|
|
| 1,508.3 |
|
|
| (637.0 | ) |
|
| 871.3 |
|
|
| 67.3 |
|
|
| 938.6 |
|
|
| (2.7 | )% |
China |
|
| 986.6 |
|
|
| (122.4 | ) |
|
| 864.2 |
|
|
| 4.6 |
|
|
| 868.8 |
|
|
| 957.6 |
|
|
| (115.6 | ) |
|
| 842.0 |
|
|
| 4.2 |
|
|
| 846.2 |
|
|
| 2.7 | % |
Worldwide |
| $ | 7,119.8 |
|
| $ | (2,875.6 | ) |
| $ | 4,244.2 |
|
| $ | 244.2 |
|
| $ | 4,488.4 |
|
| $ | 6,994.4 |
|
| $ | (2,807.9 | ) |
| $ | 4,186.5 |
|
| $ | 282.5 |
|
| $ | 4,469.0 |
|
|
| 0.4 | % |
|
|
North America
The North America region reported net sales of $955.7 million for the year ended December 31, 2016. Net sales increased $76.2 million, or 8.7%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales increased by the same 8.7% for the year ended December 31, 2016, as compared to the same period in 2015. The increase in net sales for the year ended December 31, 2016, as compared to the same period in 2015, was a result of a net sales increase in the U.S. of $75.0 million or 8.7%. The 8.7% increase in net sales for the North America region for the year ended December 31, 2016 was primarily the result of an increase in sales volume, as indicated by an increase in Volume Points, which increased net sales by approximately 8.0%, as well as price increases which contributed approximately 0.8% to net sales.
We believe North America’s Volume Point increase for 2016, versus decreases for the prior several years, reflected the positive results of Members having adjusted to the previously disclosed historical revisions in our Marketing Plan. The revisions were intended to enhance and reward a customer-centric business focus where we encourage Members to achieve product results and gain experience in the Herbalife business prior to attempting to qualify for sales leader. We also saw a positive impact from customer acquisition promotions for new Members.
The Mexico region reported net sales of $446.6 million for the year ended December 31, 2016. Net sales for the year ended December 31, 2016 decreased $33.3 million, or 6.9%, as compared to the same period in 2015. In local currency, net sales for the year ended December 31, 2016 increased 9.6%, as compared to the same period in 2015. The 6.9% decrease in net sales for the year ended December 31, 2016 was primarily the result of the effect of the strong U.S. dollar and the resulting impact of fluctuations in foreign currency rates, which reduced net sales by approximately 16.5%. This reduction to net sales was partially offset by an increase in sales volume, as indicated by an increase in Volume Points, and price increases which contributed approximately 9.1% and 0.5%, respectively to net sales.
We believe Mexico’s Volume Point increase for 2016 versus a decrease for 2015, reflected the positive results of Members having adjusted to the previously disclosed historical revisions in our Marketing Plan, which include rules that require Members attempting to qualify for sales leader status to purchase directly from Herbalife rather than from their sponsor Member (these transactions with the sponsor Member are known as “field sales”). Also significantly, Mexico had instituted customer acquisition promotions for new Members. The Mexico market had also improved service to Members by expanding the number of locations at which Members could pay for and pick up orders.
South and Central America
The South and Central America region reported net sales of $488.7 million for the year ended December 31, 2016. Net sales decreased $81.0 million, or 14.2%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales decreased 2.8% for the year ended December 31, 2016, as compared to the same period in 2015. The 14.2% decrease in net sales for the year ended December 31, 2016 was the result of a decline in sales volume, as indicated by a decrease in Volume Points, and fluctuations in foreign currency rates, which reduced net sales by approximately 13.7% and 11.4%, respectively. These reductions to net sales were partially offset by price increases which increased net sales by approximately 11.8%.
We believe the decline in Volume Points for the region for 2016, continuing a trend of declines for prior years, was a result of certain country-specific challenges in the markets making up the region discussed below.
In Brazil, the region’s largest market, net sales were $189.8 million for the year ended December 31, 2016. Net sales decreased $66.9 million, or 26.1%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales decreased 20.5% for the year ended December 31, 2016, as compared to the same period in 2015. The fluctuation of foreign currency rates had an unfavorable impact of $14.2 million on net sales in Brazil for the year ended December 31, 2016. Changes in ICMS tax legislation, effective for 2016, reduced net sales by approximately $14 million. Brazil’s net sales decrease for the year ended December 31, 2016 was also attributable to adverse economic and political conditions in the market and foreign currency fluctuations. We believe this challenging business environment contributed to Members in Brazil transitioning more slowly through the previously disclosed Marketing Plan changes implemented compared with other major markets. We introduced programs in Brazil that were successful in other regions to improve member activity and productivity. We also increased the number of product access points, expanded our product offering to promote more frequent consumption moments, and explored product affordability approaches for the market.
Net sales in Peru were $64.4 million for the year ended December 31, 2016. Net sales increased $0.8 million, or 1.3%, for the year ended December 31, 2016 as compared to the same period in 2015. In local currency, net sales increased 7.6% for the year ended December 31, 2016, as compared to the same period in 2015. The fluctuation of foreign currency rates had an unfavorable impact of $4.0 million on net sales for the year ended December 31, 2016. The market saw success with strategies such as Nutrition Clubs and customer acquisition promotions for new Members.
Net sales in Venezuela were $11.4 million for the year ended December 31, 2016. Net sales decreased $5.8 million, or 33.9%, for the year ended December 31, 2016, as compared to the same period in 2015. Significant Bolivar-to-dollar exchange rate deterioration and sales volume declines were partially offset by the impact of significant price increases in the market due to an inflationary environment. Venezuela net sales represent less than 1% of our consolidated net sales.
The EMEA region reported net sales of $815.6 million for the year ended December 31, 2016. Net sales increased $60.5 million, or 8.0%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales increased 14.2% for the year ended December 31, 2016, as compared to the same period in 2015. The 8.0% increase in net sales for the year ended December 31, 2016 was primarily the result of an increase in sales volume, as indicated by an increase in Volume Points, and price increases which increased net sales by approximately 13.8% and 2.1%, respectively. This increase in net sales was partially offset by the effect of the strong U.S. dollar and the resulting impact of fluctuations in foreign currency rates, which reduced net sales by approximately 6.1%. The EMEA region has had several years of strong growth in sales volume, as indicated by an increase in Volume Points. Though the region is made up of a large number of markets with different characteristics and levels of success, generally we believe volume growth for the region for 2016 is correlated with programs that have enhanced the quality and activity of sales leaders as they continue to focus on customer-oriented initiatives.
Net sales in Italy were $137.8 million for the year ended December 31, 2016. Net sales increased $10.8 million, or 8.5%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales increased 8.7% for the year ended December 31, 2016, as compared to the same period in 2015. The fluctuation of foreign currency rates had an unfavorable impact of $0.3 million on net sales in Italy for the year ended December 31, 2016. Italy continued to benefit from an organized training approach, events such as city-by-city tours, and efforts to increase brand awareness.
Net sales in Spain were $98.8 million for the year ended December 31, 2016. Net sales increased $12.1 million, or 13.9%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales in Spain increased 14.1% for the year ended December 31, 2016, as compared to the same period in 2015. The fluctuation of foreign currency rates had an unfavorable impact of $0.2 million on net sales in Spain for the year ended December 31, 2016. Spain continued to increase the number of Member locations such as Nutrition Clubs, and utilized local marketing strategies to increase brand awareness.
Net sales in Russia were $105.9 million for the year ended December 31, 2016. Net sales increased $5.5 million, or 5.5%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales increased 15.9% for the year ended December 31, 2016, as compared to the same period in 2015. The fluctuation of foreign currency rates had an unfavorable impact of $10.5 million on net sales in Russia for the year ended December 31, 2016. Product prices in Russia were increased 5% in March 2016 and 14% in March 2015. Russia continued to emphasize the strategy of building a sustainable business through customer focused activities, including customer acquisition promotions for new Members.
Net sales in the United Kingdom were $44.7 million for the year ended December 31, 2016. Net sales decreased $9.9 million, or 18.1%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales in the United Kingdom decreased 8.3% for the year ended December 31, 2016, as compared to the same period in 2015. The fluctuation of foreign currency rates had an unfavorable impact of $5.4 million on net sales in the United Kingdom for the year ended December 31, 2016.
Asia Pacific
The Asia Pacific region, which excludes China, reported net sales of $913.0 million for the year ended December 31, 2016. Net sales decreased $25.6 million, or 2.7%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales decreased 0.6% for the year ended December 31, 2016, as compared to the same period in 2015. The 2.7% decrease in net sales for the year ended December 31, 2016 was primarily due to an unfavorable change in country sales mix resulting from a lower percentage of our sales volume coming from markets with higher prices and the impact of fluctuations in foreign currency rates, which reduced net sales by approximately 2.4% and 2.1%, respectively. This reduction to net sales was partially offset by an increase in sales volume, as indicated by an increase in Volume Points, and price increases which contributed approximately 1.1% and 0.6%, respectively, to net sales. We believe the increases in Volume Points for the region for 2016, despite a significant decline for the South Korea market, were driven by country-specific factors including those discussed below.
Net sales in South Korea were $177.8 million for the year ended December 31, 2016. Net sales decreased $89.2 million, or 33.4%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales decreased 31.3% for the year ended December 31, 2016, as compared to the same period in 2015. The fluctuation of foreign currency rates had an unfavorable impact of $5.5 million on net sales for the year ended December 31, 2016. South Korea has been negatively impacted by a number of changes in the Marketing Plan, some of which are unique to South Korea. In addition to the shift in emphasis toward the longer-term sales leader qualification method, we also changed the product discount structure in South Korea and began charging a fee for the Member kit in 2016. Previously, the Member kit in South Korea was free. While we believed these changes would benefit the market in the long term, they resulted in sales declines as sales leaders continued to adapt to these new methods of operation.
Net sales in India were $167.9 million for the year ended December 31, 2016. Net sales decreased $1.5 million, or 0.9%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales increased 3.7% for the year ended December 31, 2016, as compared to the same period in 2015. The fluctuation of foreign currency rates had an unfavorable impact of $7.7 million on net sales for the year ended December 31, 2016. In May 2016, we introduced a customer acquisition promotion which we believe contributed to higher sales leader activity and productivity compared to the same period in 2015. India continued to expand its product line.
Net sales in Taiwan were $127.4 million for the year ended December 31, 2016. Net sales increased $1.3 million, or 1.0%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales increased 2.8% for the year ended December 31, 2016, as compared to the same period in 2015. The fluctuation of foreign currency rates had an unfavorable impact of $2.2 million on net sales for the year ended December 31, 2016. Taiwan had a price increase of 2.8% in June 2016.
Net sales in Indonesia were $113.9 million for the year ended December 31, 2016. Net sales increased $27.8 million, or 32.2%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales increased 31.3% for the year ended December 31, 2016, as compared to the same period in 2015. The fluctuation of foreign currency rates had a favorable impact of $0.8 million on net sales for the year ended December 31, 2016. Indonesia had price increases of 3% in September 2016 and 6% in October 2015. The Indonesia market continued to make progress by focusing on a customer-based business and daily consumption through Nutrition Clubs, training activities, and new products. We increased the number of product access points for the market as well.
China
Net sales in China were $868.8 million for the year ended December 31, 2016. Net sales increased $22.6 million, or 2.7%, for the year ended December 31, 2016, as compared to the same period in 2015. In local currency, net sales increased 8.5% for the year ended December 31, 2016, as compared to the same period in 2015. The net sales increase for the year was primarily the result of an increase in sales volume, as indicated by an increase in Volume Points, of approximately 7.4%, partially offset by the unfavorable impact of fluctuations in foreign currency rates, which reduced net sales by approximately 5.8%.
We saw continued adoption and acculturation of daily consumption DMOs in the China market, including Nutrition Clubs, aided by a Preferred Customer program, a Healthy Active Lifestyle program and supported by ongoing investments in advertising, corporate social responsibility and brand awareness. We continued to enhance service provider support and product access in China through online and mobile platforms. We believe the lower rate of sales volume increase for the year compared with recent years, including a volume decline for the fourth quarter of 2016, as indicated by a decrease in Volume Points, were attributable to factors such as Members testing new business methods that did not prove to be as sustainable as traditional methods.
Sales by Product Category
|
| Year Ended December 31, |
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
|
| 2016 |
|
| 2015 |
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
| Retail Value(2) |
|
| Distributor Allowance |
|
| Product Sales |
|
| Shipping & Handling Revenues |
|
| Net Sales |
|
| Retail Value(2) |
|
| Distributor Allowance |
|
| Product Sales |
|
| Shipping & Handling Revenues |
|
| Net Sales |
|
| % Change in Net Sales |
| |||||||||||
|
| (Dollars in millions) |
| |||||||||||||||||||||||||||||||||||||||||
Weight Management |
| $ | 4,621.5 |
|
| $ | (1,915.5 | ) |
| $ | 2,706.0 |
|
| $ | 158.5 |
|
| $ | 2,864.5 |
|
| $ | 4,567.1 |
|
| $ | (1,888.7 | ) |
| $ | 2,678.4 |
|
| $ | 184.4 |
|
| $ | 2,862.8 |
|
|
| 0.1 | % |
Targeted Nutrition |
|
| 1,714.7 |
|
|
| (710.7 | ) |
|
| 1,004.0 |
|
|
| 58.8 |
|
|
| 1,062.8 |
|
|
| 1,620.0 |
|
|
| (670.0 | ) |
|
| 950.0 |
|
|
| 65.4 |
|
|
| 1,015.4 |
|
|
| 4.7 | % |
Energy, Sports and Fitness |
|
| 432.9 |
|
|
| (179.4 | ) |
|
| 253.5 |
|
|
| 14.9 |
|
|
| 268.4 |
|
|
| 400.2 |
|
|
| (165.5 | ) |
|
| 234.7 |
|
|
| 16.2 |
|
|
| 250.9 |
|
|
| 7.0 | % |
Outer Nutrition |
|
| 178.2 |
|
|
| (73.9 | ) |
|
| 104.3 |
|
|
| 6.1 |
|
|
| 110.4 |
|
|
| 212.1 |
|
|
| (87.7 | ) |
|
| 124.4 |
|
|
| 8.6 |
|
|
| 133.0 |
|
|
| (17.0 | )% |
Literature, Promotional and Other(1) |
|
| 172.5 |
|
|
| 3.9 |
|
|
| 176.4 |
|
|
| 5.9 |
|
|
| 182.3 |
|
|
| 195.0 |
|
|
| 4.0 |
|
|
| 199.0 |
|
|
| 7.9 |
|
|
| 206.9 |
|
|
| (11.9 | )% |
Total |
| $ | 7,119.8 |
|
| $ | (2,875.6 | ) |
| $ | 4,244.2 |
|
| $ | 244.2 |
|
| $ | 4,488.4 |
|
| $ | 6,994.4 |
|
| $ | (2,807.9 | ) |
| $ | 4,186.5 |
|
| $ | 282.5 |
|
| $ | 4,469.0 |
|
|
| 0.4 | % |
|
|
|
|
Net sales for the Weight Management, Targeted Nutrition, and Energy, Sports and Fitness product categories increased for the year ended December 31, 2016 as compared to the same period in 2015. Net sales for the Outer Nutrition and Literature, Promotional, and Other product categories decreased for the year ended December 31, 2016 as compared to the same period in 2015. The trend and business factors described in the above discussions of the individual geographic regions apply generally to all product categories.
Gross Profit
Gross profit was $3,633.8 million for the year ended December 31, 2016, as compared to $3,613.0 million for the same period in 2015. As a percentage of net sales, gross profit for the year ended December 31, 2016 was 81.0% as compared to 80.9% for the same period in 2015, or a favorable net increase of 10 basis points. The gross profit rate for the year ended December 31, 2016 included the favorable impact of cost savings through strategic sourcing and self-manufacturing of 80 basis points, retail price increases of 40 basis points, lower inventory write-downs of 23 basis points, and country mix of 18 basis points, partially offset by the unfavorable impact of foreign currency fluctuations of 140 basis points and other cost changes of 11 basis points. Generally, gross profit as a percentage of net sales may vary from period to period due to the impact of foreign currency fluctuations, changes in country mix as volume changes among countries with varying margins, retail price increases, cost savings through strategic sourcing and self-manufacturing, and inventory write-downs.
Royalty Overrides
Royalty Overrides were $1,272.6 million for the year ended December 31, 2016, as compared to $1,251.4 million for the same period in 2015. Royalty Overrides as a percentage of net sales were 28.4% for the year ended December 31, 2016 as compared to 28.0% for the same period in 2015. The changes in royalty overrides as a percentage of net sales were primarily due to30.5% and 29.7% for the sales in our China business relative to that of our worldwide business. Compensationyears ended December 31, 2020 and 2019, respectively.
2020 and 2019, respectively.
In late 2012, a hedge fund manager publicly raised allegations regarding the legality of our network marketing program and announced that the hedge fund manager had taken a significant short position regarding our common shares, leading to intense public scrutiny and significant stock price volatility. We have engaged legal and advisory services firms to assist with responding to the allegations and to perform other related services in connection to these events. For the year ended December 31, 2016, we recorded approximately $12.1 million of expenses related to this matter, of which approximately $9.5 million was related to legal, advisory and other professional service fees. For the year ended December 31, 2015, we recorded approximately $18.7 million of expenses related to this matter, of which approximately $16.8 million was related to legal, advisory and other professional service fees.
Other Operating Income
Other operating income was $63.8 million for the year ended December 31, 2016, as compared to $6.5 million for the same period in 2015. The increase in other operating income was due to an increase in government grant income related to China and the arbitration award received in 2016 in connection with the re-audit of our 2010 to 2012 financial statements after the resignation of KPMG as our independent registered public accounting firm (See Note 2, Basis of Presentation, to the Consolidated Financial Statements for further discussion).
Net interest expense is as follows:
Net Interest Expense |
| Year Ended December 31, 2016 |
|
| Year Ended December 31, 2015 |
| ||
|
| (Dollars in millions) |
| |||||
Interest expense |
| $ | 99.3 |
|
| $ | 100.5 |
|
Interest income |
|
| (5.9 | ) |
|
| (5.6 | ) |
Net Interest Expense |
| $ | 93.4 |
|
| $ | 94.9 |
|
The decrease in net interest expense for the year ended December 31, 2016,2020 as compared to the same period in 2015,2019 was driven by $84.1 million in higher labor and benefits costs primarily driven by headcount increases to support our sales growth; $43.1 million in higher expenses relating to the SEC and DOJ investigations relating to the FCPA matter in China (See Note 7,
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
(in millions) | ||||||||
Interest expense | $ | 133.0 | $ | 153.0 | ||||
Interest income | (8.8 | ) | (20.6 | ) | ||||
Interest expense, net | $ | 124.2 | $ | 132.4 | ||||
Other (Income) Expense, Net
There was no other (income) expense, net for the year ended December 31, 20162020 as compared to $2.3 million for the same period in 2015. The2019 was primarily due to a decrease in our overall weighted-average interest rate and weighted-average borrowings, partially offset by lower interest income earned as a result of lower interest rates.
Income Taxes
Income taxes were $104.72020. The $15.7 million of other income, net for the year ended December 31, 2016, as compared2019 consisted of a $15.7 million gain on the revaluation of the CVR (See Note 8,
income, partially offset by a decrease in net benefits from discrete events.
For the year ended December 31, 2017,2020, we generated $590.8$628.6 million of operating cash flow as compared to $367.3$457.5 million for the same period in 2016.2019. The increase in our operating cash flow was the result of higher non-cash items and$102.4 million of favorable changes in operating assets and liabilities partially offset by lowerand $68.7 million of higher net income.income excludingincrease in non-cash items was primarily the result of changes in deferred income taxes mainly due to the impact of the U.S. Tax Reform. The favorable$102.4 million change in operating assets and liabilities was primarily the result of favorable changes in inventories, prepaid expensesroyalty overrides and other current assets;liabilities, which included favorable changes in accrued compensation and income taxes payable; partially offset by unfavorable changes in receivables and other current liabilities. The decrease in net income was primarily the result of lower contribution margin due to lower net sales, higher interest expense from the new credit facility, and higher income taxes also mainly due to the impact of the U.S. Tax Reform; partially offset by lower selling, general, and administrative expenses mainly due to the $203.0 million regulatory settlements in 2016. The changes in our deferred income taxes related to the U.S. Tax Reform has no net impact on our operating cash flow, as it decreased our net income by $153.3 million, and increased our non-cash adjustments to net income by $153.3 million.
For the year ended December 31, 2016, we generated $367.3 million of operating cash flow, as compared to $628.7 million for the same period in 2015. The decrease in our operating cash flow was the result of lower net income, lower non-cash items, and net unfavorable changes in operating assets and liabilities. The decrease in net income was primarily the result of the $203.0 million in regulatory settlements, partially offset by lower income taxes, higher other operating income related to the government grants in China, and the arbitration award related to the re-audit. The change in operating assets and liabilities was primarily the result of changes in inventories; changes in prepaid expenses and other current assetsassets. The $68.7 million of higher net income excluding
China.
2021.
In May 2015, we amended our prior senior secured credit facility, or the Prior Credit Facility, and our $700 million borrowing capacity on our prior revolving credit facility, or the Prior Revolving Credit Facility, was reduced by approximately $235.9 million, and was further reduced by approximately $39.1 million on September 30, 2015, bringing the total available borrowing capacity to $425.0 million as of December 31, 2016. We repaid in full our $500 million term loan under the Prior Credit Facility, or the Prior Term Loan, on March 9, 2016.
income during the year ended December 31, 2020.
isA and 2018 Term Loan B are payable in consecutive quarterly installments each in an aggregate principal amount of $24.4 million, which began on June 30, 2017.December 31, 2018. Interest is due at least quarterly on amounts outstanding onunder the 2018 Credit Facility. In addition, beginning in 2020, we may be required to make mandatory prepayments towards the 2018 Term Loan B based on our consolidated leverage ratio and annual excess cash flows as defined under the terms of the credit agreement.2018 Credit Facility. We are also permitted to make voluntary prepayments. Amounts outstanding under the 2018 Term Loan A may be voluntarily prepaid without premium or penalty, subject to customary breakage fees in connection with the prepayment of a eurocurrency loan. Under the 2018 Credit Facility, amounts outstanding under the 2018 Term Loan B may be voluntarily prepaid without premium or penalty,
Facility, we will not be required to make a mandatory prepayment in 2021 toward the 2018 Term Loan B.
respectively.
During due 2019
|
| Payments Due by Period |
| |||||||||||||||||
|
| Total |
|
| 2018 |
|
| 2019 - 2020 |
|
| 2021 - 2022 |
|
| 2023 & Thereafter |
| |||||
|
| (Dollars in millions) |
| |||||||||||||||||
Convertible senior notes |
| $ | 1,196.0 |
|
| $ | 23.0 |
|
| $ | 1,173.0 |
|
| $ | — |
|
| $ | — |
|
Borrowings under the senior secured credit facility(1) |
|
| 1,590.4 |
|
|
| 182.8 | �� |
|
| 344.8 |
|
|
| 316.7 |
|
|
| 746.1 |
|
Operating leases |
|
| 229.0 |
|
|
| 51.6 |
|
|
| 72.9 |
|
|
| 31.3 |
|
|
| 73.2 |
|
Purchase obligations and other commitments |
|
| 161.1 |
|
|
| 125.6 |
|
|
| 23.8 |
|
|
| 11.7 |
|
|
| — |
|
Total(2) |
| $ | 3,176.5 |
|
| $ | 383.0 |
|
| $ | 1,614.5 |
|
| $ | 359.7 |
|
| $ | 819.3 |
|
Payments Due by Period | ||||||||||||||||||||
Total | 2021 | 2022 - 2023 | 2024 - 2025 | 2026 & Thereafter | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Convertible senior notes due 2024 | 600.5 | 14.4 | 28.9 | 557.2 | — | |||||||||||||||
Senior notes due 2025 | 848.5 | 59.3 | 94.5 | 694.7 | — | |||||||||||||||
Senior notes due 2026 | 574.0 | 29.0 | 58.0 | 58.0 | 429.0 | |||||||||||||||
Borrowings under the senior secured credit facility(1) | 1,106.8 | 48.9 | 108.8 | 949.1 | — | |||||||||||||||
Operating leases | 329.0 | 45.8 | 85.8 | 60.7 | 136.7 | |||||||||||||||
Purchase obligations and other commitments | 251.2 | 225.5 | 24.9 | 0.8 | — | |||||||||||||||
Total(2) | $ | 3,710.0 | $ | 422.9 | $ | 400.9 | $ | 2,320.5 | $ | 565.7 | ||||||||||
(1) | The estimated interest payments on our 2018 Credit Facility are based on interest rates effective as of December 31, |
(2) | Our consolidated balance sheet as of December 31, |
For earnings not considered to be indefinitely reinvested deferred taxes have been provided. For earnings considered to be indefinitely reinvested, deferred taxes have not been provided. Should we make a determination to remit the cash and cash equivalents from our foreign subsidiaries that are considered indefinitely reinvested to our U.S. consolidated group for the purpose of repatriation of undistributed earnings, we would need to accrue and pay taxes. As of December 31, 2017,2020, our U.S. consolidated group had approximately $97.9$147.7 million of permanently reinvested unremitted earnings from certain foreign subsidiaries, and if these monies were ever needed to be remitted, the impact of any tax consequences on our overall liquidity position would not be material. As of December 31, 2017, our parent,2020, Herbalife Nutrition Ltd., had $2.4approximately $2.6 billion of permanently reinvested unremitted earnings relating to its operating subsidiaries. As a result of our decision to invest in the China Growth and Impact Investment Program, approximately $113.9 million of unremitted earnings were permanently reinvested as of December 31, 2017,2020. As of December 31, 2020, we do not have any plans to repatriate these unremitted earnings to our parent;Herbalife Nutrition Ltd.; therefore, we do not have any liquidity concerns relating to these unremitted earnings and related cash and cash equivalents. See Note 12,
directors.
As of December 31, 2020, the remaining authorized capacity under our $1.5 billion share repurchase program was $607.9 million.
During
In connection with theour October 2017 modified Dutch auction tender offer, we incurred $1.6 million in transaction costs and also provided a contractual we areHerbalife is acquired in a going-private transaction (as defined in the CVR Agreement) within two years of the commencement of the tender offer. The initial fair value of the CVR was $7.3 million, which was recorded as a liability in the fourth quarter of 2017 with a corresponding decrease to shareholders’ equity. In determining the initial fair value of the CVR, we used a lattice model, which included inputs such as the underlying stock price, strike price, time to expiration, and dividend yield. Subsequent changes in the fair value of the CVR liability, using a similar valuation approach as the initial fair value determination, arewere recognized within our consolidated balance sheetsheets with corresponding gains or losses being recognized in non-operatingother expense (income), net within our consolidated statements of income during each reporting period until the CVR expiresexpired in August 2019 or iswas terminated due to a going-private transaction. Astransaction, which was also
driven by its expiration during August 2019. During the year ended December 31, 2018, we recognized an $8.8 million loss in other expense (income), net within our consolidated statement of income due to the change in the fair value of the CVR, which was primarily driven by an increase in the market price of our common shares, partially offset by a decrease in the probability of a going-private transaction as a result of the shortening term of the CVR before it expired pursuant to its terms.
liabilities.
|
| Quarter Ended |
| |||||||||||||||||||||||||||||
|
| December 31, 2017 |
|
| September 30, 2017 |
|
| June 30, 2017 |
|
| March 31, 2017 |
|
| December 31, 2016 |
|
| September 30, 2016 |
|
| June 30, 2016 |
|
| March 31, 2016 |
| ||||||||
|
| (In millions except per share data) |
| |||||||||||||||||||||||||||||
Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 1,093.3 |
|
| $ | 1,085.4 |
|
| $ | 1,146.9 |
|
| $ | 1,102.1 |
|
| $ | 1,045.0 |
|
| $ | 1,122.0 |
|
| $ | 1,201.8 |
|
| $ | 1,119.6 |
|
Cost of sales |
|
| 209.8 |
|
|
| 215.4 |
|
|
| 218.8 |
|
|
| 204.6 |
|
|
| 196.1 |
|
|
| 209.1 |
|
|
| 236.3 |
|
|
| 213.1 |
|
Gross profit |
|
| 883.5 |
|
|
| 870.0 |
|
|
| 928.1 |
|
|
| 897.5 |
|
|
| 848.9 |
|
|
| 912.9 |
|
|
| 965.5 |
|
|
| 906.5 |
|
Royalty overrides |
|
| 310.1 |
|
|
| 310.1 |
|
|
| 318.9 |
|
|
| 315.1 |
|
|
| 303.7 |
|
|
| 320.3 |
|
|
| 336.7 |
|
|
| 311.9 |
|
Selling, general and administrative expenses |
|
| 431.6 |
|
|
| 445.2 |
|
|
| 443.2 |
|
|
| 438.6 |
|
|
| 421.7 |
|
|
| 441.3 |
|
|
| 676.8 |
|
|
| 427.1 |
|
Other operating income |
|
| (7.3 | ) |
|
| (4.6 | ) |
|
| (38.9 | ) |
|
| — |
|
|
| (34.7 | ) |
|
| (0.2 | ) |
|
| (28.1 | ) |
|
| (0.8 | ) |
Operating income |
|
| 149.1 |
|
|
| 119.3 |
|
|
| 204.9 |
|
|
| 143.8 |
|
|
| 158.2 |
|
|
| 151.5 |
|
|
| (19.9 | ) |
|
| 168.3 |
|
Interest expense, net |
|
| 39.8 |
|
|
| 38.4 |
|
|
| 37.9 |
|
|
| 30.2 |
|
|
| 23.3 |
|
|
| 22.1 |
|
|
| 23.1 |
|
|
| 24.9 |
|
Other (income) expense, net |
|
| (0.4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Income before income taxes |
|
| 109.7 |
|
|
| 80.9 |
|
|
| 167.0 |
|
|
| 113.6 |
|
|
| 134.9 |
|
|
| 129.4 |
|
|
| (43.0 | ) |
|
| 143.4 |
|
Income taxes |
|
| 173.1 |
|
|
| 26.4 |
|
|
| 29.4 |
|
|
| 28.4 |
|
|
| 35.5 |
|
|
| 41.7 |
|
|
| (20.1 | ) |
|
| 47.6 |
|
Net (loss) income |
| $ | (63.4 | ) |
| $ | 54.5 |
|
| $ | 137.6 |
|
| $ | 85.2 |
|
| $ | 99.4 |
|
| $ | 87.7 |
|
| $ | (22.9 | ) |
| $ | 95.8 |
|
(Loss) Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.87 | ) |
| $ | 0.69 |
|
| $ | 1.69 |
|
| $ | 1.03 |
|
| $ | 1.19 |
|
| $ | 1.06 |
|
| $ | (0.28 | ) |
| $ | 1.16 |
|
Diluted |
| $ | (0.87 | ) |
| $ | 0.66 |
|
| $ | 1.61 |
|
| $ | 0.98 |
|
| $ | 1.16 |
|
| $ | 1.01 |
|
| $ | (0.28 | ) |
| $ | 1.12 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 72.9 |
|
|
| 79.6 |
|
|
| 81.4 |
|
|
| 83.1 |
|
|
| 83.2 |
|
|
| 83.1 |
|
|
| 83.0 |
|
|
| 82.8 |
|
Diluted |
|
| 72.9 |
|
|
| 83.0 |
|
|
| 85.3 |
|
|
| 86.7 |
|
|
| 86.0 |
|
|
| 86.4 |
|
|
| 83.0 |
|
|
| 85.6 |
|
Quarter Ended | ||||||||||||||||||||||||||||||||||||||||
December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019(1) | September 30, 2019 | June 30, 2019 | March 31, 2019 | |||||||||||||||||||||||||||||||||
(in millions, except per share amounts) | ||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 1,410.7 | $ | 1,521.8 | $ | 1,346.9 | $ | 1,262.4 | $ | 1,220.3 | $ | 1,244.5 | $ | 1,240.1 | $ | 1,172.2 | ||||||||||||||||||||||||
Cost of sales | 309.4 | 322.7 | 272.8 | 245.7 | 229.8 | 243.4 | 243.2 | 241.6 | ||||||||||||||||||||||||||||||||
Gross profit | 1,101.3 | 1,199.1 | 1,074.1 | 1,016.7 | 990.5 | 1,001.1 | 996.9 | 930.6 | ||||||||||||||||||||||||||||||||
Royalty overrides | 438.9 | 463.1 | 406.9 | 381.2 | 358.1 | 363.8 | 366.8 | 359.5 | ||||||||||||||||||||||||||||||||
Selling, general, and administrative expenses | 515.5 | 529.7 | 480.8 | 549.0 | 527.8 | 500.1 | 477.0 | 435.4 | ||||||||||||||||||||||||||||||||
Other operating income | (1.5 | ) | (0.6 | ) | (3.3 | ) | (9.1 | ) | (3.8 | ) | (6.4 | ) | — | (27.3 | ) | |||||||||||||||||||||||||
Operating income | 148.4 | 206.9 | 189.7 | 95.6 | 108.4 | 143.6 | 153.1 | 163.0 | ||||||||||||||||||||||||||||||||
Interest expense, net | 35.2 | 35.2 | 28.8 | 25.0 | 28.4 | 31.6 | 36.3 | 36.1 | ||||||||||||||||||||||||||||||||
Other expense (income), net | — | — | — | — | — | (1.3 | ) | (5.9 | ) | (8.5 | ) | |||||||||||||||||||||||||||||
Income before income taxes | 113.2 | 171.7 | 160.9 | 70.6 | 80.0 | 113.3 | 122.7 | 135.4 | ||||||||||||||||||||||||||||||||
Income taxes | 39.4 | 33.6 | 45.8 | 25.0 | 23.3 | 31.8 | 46.2 | 39.1 | ||||||||||||||||||||||||||||||||
Net income | $ | 73.8 | $ | 138.1 | $ | 115.1 | $ | 45.6 | $ | 56.7 | $ | 81.5 | $ | 76.5 | $ | 96.3 | ||||||||||||||||||||||||
Earnings per share: | ||||||||||||||||||||||||||||||||||||||||
Basic | $ | 0.61 | $ | 1.07 | $ | 0.84 | $ | 0.33 | $ | 0.41 | $ | 0.59 | $ | 0.56 | $ | 0.70 | ||||||||||||||||||||||||
Diluted | $ | 0.59 | $ | 1.04 | $ | 0.82 | $ | 0.32 | $ | 0.40 | $ | 0.58 | $ | 0.54 | $ | 0.66 | ||||||||||||||||||||||||
Weighted-average shares outstanding: | ||||||||||||||||||||||||||||||||||||||||
Basic | 121.3 | 129.2 | 137.9 | 137.8 | 137.5 | 137.4 | 137.4 | 137.1 | ||||||||||||||||||||||||||||||||
Diluted | 124.3 | 132.5 | 140.1 | 140.2 | 140.8 | 140.0 | 142.4 | 145.5 |
(1) | The fourth quarter of 2019 includes a net favorable adjustment to our unrecognized tax benefit liability of $11.4 million primarily attributable to transfer pricing matters in various foreign jurisdictions, and a legal accrual of $40 million relating to the SEC and DOJ investigations relating to the FCPA matter in China as described further in Note 7, Contingencies to the Consolidated Financial Statements included in Part IV, Item 15, Exhibits, Financial Statement Schedules Form 10-K. |
2020.
events, including the $600 million share repurchase agreement that was entered into on January 3, 2021.
management,management; targeted nutrition,nutrition; energy, sports, & fitness,and fitness; and outer nutrition products. Our products are manufactured by us in our Changsha, Hunan, China extraction facility, Suzhou, China facility, Nanjing, China facility, Lake Forest, California facility, and in our Winston-Salem, North Carolina facility, and by third partythird-party providers, and then are sold to Members who consume and sell Herbalife products to retail consumers or other Members. As of December 31, 2017,2020, we sold products in 94 countries95 markets throughout the world and we are organized and managed by geographic region. We aggregate our operating segments into one reporting segment, except China, as management believes that our operating segments have similar operating characteristics and similar long termlong-term operating performance. In making this determination, management believes that the operating segments are similar in the nature of the products sold, the product acquisition process, the types of customers to whom products are sold, the methods used to distribute the products, the nature of the regulatory environment, and their economic characteristics.
2019.
In order to estimate the fair value of goodwill, we also primarily use an income approach. The determination of impairment is made at the reporting unit level and consists of two steps. First, weapproach in order to determine the fair value of a reporting unit and compare it to its carrying amount. The determination of the fair value of the reporting units requires us to make significant estimates and assumptions. These estimates and assumptions include estimates of future revenues and expense growth rates, capital expenditures and the depreciation and amortization related to these capital expenditures, discount rates, and other inputs. Due to the inherent uncertainty involved in making these estimates, actual future results could differ. Changes in assumptions regarding future results or other underlying assumptions could have a significant impact on the fair value of the reporting unit. Second, ifIf the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill and other intangiblesunit over the impliedits fair value as determined in Step 2 of the goodwill impairment test. Also, if during Step 1 of a goodwill impairment testvalue.
2019. See Note 2,
On December 22, 2017, the U.S. enacted the 2017 Tax Cuts and Jobs Act of 2017, or U.S. Tax Reform, which contains several key tax provisions that affect the Company,us, including, but not limited to, aThe Company isWe are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring itsour U.S. deferred tax assets and liabilities as well as reassessing the net realizability of itsour deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118,the Companyus to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. See Note 12,the U.S. Tax Reform.
We have made an accounting policy election to account for global intangible
Item 7A. |
Quantitative and Qualitat ive Disclosures About Market Risk |
cash-flowcash flow hedges and are subject to foreign currency exposures. We applied the hedge accounting rules as required by ASC 815 for these hedges. These contracts allow us to buy and sell certain currencies at specified contract rates. As of December 31, 20172020 and December 31, 2016,2019, the aggregate notional amounts of these contracts outstanding were approximately $104.9$56.4 million and $90.0$66.4 million, respectively. As of December 31, 2017,2020, the outstanding contracts were expected to mature over the next fifteen months. Our derivative financial instruments are recorded on the consolidated balance sheetsheets at fair value based on quoted market rates. For the forecasted inventory transactions, the forward contracts are used to hedge forecasted inventory transactions over specific months. Changes in the fair value of these forward contracts designated as cash flow hedges, excluding forward points, designated as cash-flow hedges are recorded as a component of accumulated other comprehensive income (loss)loss within shareholders’ (deficit) equity,deficit, and are recognized in cost of sales in thewithin our consolidated statementsstatement of income during the period which approximates the time the hedged inventory is sold. We also hedge
As of December 31, 20172020 and December 31, 2016,2019, the majority of our outstanding foreign currency forward contracts had maturity dates of less than twelve months with the majority of freestanding derivatives expiring within one month as of December 31, 2017 and December 31, 2016, respectively.
month.
Item 8. |
Financial Stateme nts and Supplementary Data |
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
Item |
Controls and Procedures |
None.
2020.
2020.
Item 9B. | Other Information |
Item 10. |
Directors, Executive Officers and Corporate Governance |
Item 11. | Executive Compensation |
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
Item 14. |
Principal Accountant Fees and Services |
Item 15. |
Exhibits, Financial Statement Schedules |
| |||||
Page No. | |||||
HERBALIFE NUTRITION LTD. AND SUBSIDIARIES | |||||
| 90 | ||||
| 93 | ||||
| 94 | ||||
| 95 | ||||
| 96 | ||||
| 97 | ||||
| 98 |
|
|
| ||||||
Exhibit Number | Description | Reference | ||||||
|
|
| ||||||
10.12# | ||||||||
|
|
| ||||||
|
| |||||||
|
| |||||||
|
| (f | ) | |||||
|
| |||||||
|
| |||||||
| Amendment to Amended and Restated Herbalife Ltd. 2005 Stock Incentive Plan |
| (f | ) | ||||
|
| |||||||
|
| |||||||
|
| |||||||
|
| |||||||
|
| (o | ) | |||||
| Amended and Restated Herbalife Ltd. 2014 Stock Incentive Plan |
| (f | ) | ||||
|
|
| ||||||
|
| |||||||
|
| (f | ) | |||||
| Stipulation to Entry of Order for Permanent Injunction and Monetary Judgment |
|
| * |
|
| |||||
101.INS | Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | * |
Exhibit Number | Description | Reference | ||||||
| ||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | * | ||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | * | ||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | * | ||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | * | ||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | * | ||||||
104 | Cover Page Interactive Data File – The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 is formatted in Inline XBRL (included as Exhibit 101) | * |
* | Filed herewith. |
| Furnished herewith. |
# | Management contract or compensatory plan or arrangement. |
(a) | Previously filed on October 1, 2004 as an Exhibit to the Company’s registration statement on Form S-1 (FileNo. 333-119485) and is incorporated herein by reference. |
(b) | Previously filed on December 2, 2004 as an Exhibit to Amendment No. 4 to the Company’s registration statement on Form S-1 (FileNo. 333-119485) and is incorporated herein by reference. |
(c) | Previously filed on December 14, 2004 as an Exhibit to Amendment No. 5 to the Company’s registration statement on Form S-1 (FileNo. 333-119485) and is incorporated herein by reference. |
(d) |
|
|
|
|
|
|
|
| Previously filed on May 5, 2015 as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 and is incorporated herein by reference. |
| Previously filed on August 5, 2015 as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and is incorporated herein by reference. |
| Previously filed on May 5, 2016 as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and is incorporated herein by reference. |
| Previously filed on July 15, 2016 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference. |
| Previously filed on February 23, 2017 as an Exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and is incorporated herein by reference. |
| Previously filed on August 1, 2017 as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 and is incorporated herein by reference. |
| Previously filed on August 21, 2017 as an Exhibit to the Company’s Tender Offer Statement on Schedule TO and is incorporated herein by reference. |
| Previously filed on 10-K for the year ended December 31, 2017 and is incorporated herein by reference. |
(l) | Previously filed on March 29, 2018 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference. |
(m) | Previously filed on May 3, 2018 as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 and is incorporated herein by reference. |
(n) | Previously filed on August 22, 2018 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference. |
(o) | Previously filed on February 19, 2019 as an Exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and is incorporated herein by reference. |
(p) | Previously filed on August 1, 2019 as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and is incorporated herein by reference. |
(q) | Previously filed on October 29, 2019 as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 and is incorporated herein by reference. |
(r) | Previously filed on December 12, 2019 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference. |
(s) | Previously filed on February 18, 2020 as an Exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. |
(t) | Previously filed on March 19, 2020 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference. |
(u) | Previously filed on May 7, 2020 as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and is incorporated herein by reference. |
(v) | Previously filed on May 29, 2020 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference. |
(w) | Previously filed on November 5, 2020 as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and is incorporated herein by reference. |
(x) | Previously filed on November 5, 2020 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference. |
(y) | Previously filed on January 4, 2021 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference. |
(z) | Previously filed on February 11, 2021 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference. |
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for unrealized excess tax benefits in 2017.
17, 2021
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
| (In millions) |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 1,278.8 |
|
| $ | 844.0 |
|
Receivables, net of allowance for doubtful accounts |
|
| 93.3 |
|
|
| 70.3 |
|
Inventories |
|
| 341.2 |
|
|
| 371.3 |
|
Prepaid expenses and other current assets |
|
| 147.0 |
|
|
| 176.9 |
|
Total current assets |
|
| 1,860.3 |
|
|
| 1,462.5 |
|
Property, plant and equipment, at cost, net of accumulated depreciation and amortization |
|
| 377.5 |
|
|
| 378.0 |
|
Marketing related intangibles and other intangible assets, net |
|
| 310.1 |
|
|
| 310.1 |
|
Goodwill |
|
| 96.9 |
|
|
| 89.9 |
|
Other assets |
|
| 250.3 |
|
|
| 324.9 |
|
Total assets |
| $ | 2,895.1 |
|
| $ | 2,565.4 |
|
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 67.8 |
|
| $ | 66.0 |
|
Royalty overrides |
|
| 277.7 |
|
|
| 261.2 |
|
Current portion of long-term debt |
|
| 102.4 |
|
|
| 9.5 |
|
Other current liabilities |
|
| 458.9 |
|
|
| 454.8 |
|
Total current liabilities |
|
| 906.8 |
|
|
| 791.5 |
|
NON-CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
| 2,165.7 |
|
|
| 1,438.4 |
|
Other non-current liabilities |
|
| 157.3 |
|
|
| 139.2 |
|
Total liabilities |
|
| 3,229.8 |
|
|
| 2,369.1 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
SHAREHOLDERS’ (DEFICIT) EQUITY: |
|
|
|
|
|
|
|
|
Common shares, $0.001 par value; 1.0 billion shares authorized; 82.3 million (2017) and 93.1 million (2016) shares outstanding |
|
| 0.1 |
|
|
| 0.1 |
|
Paid-in capital in excess of par value |
|
| 407.3 |
|
|
| 467.6 |
|
Accumulated other comprehensive loss |
|
| (165.4 | ) |
|
| (205.1 | ) |
Accumulated deficit |
|
| (248.1 | ) |
|
| (66.3 | ) |
Treasury stock, at cost, 5.0 million shares (2017) |
|
| (328.6 | ) |
| — |
| |
Total shareholders’ (deficit) equity |
|
| (334.7 | ) |
|
| 196.3 |
|
Total liabilities and shareholders’ (deficit) equity |
| $ | 2,895.1 |
|
| $ | 2,565.4 |
|
December 31, | ||||||||||
2020 | 2019 | |||||||||
(in millions, except share and par value amounts) | ||||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 1,045.4 | $ | 839.4 | ||||||
Receivables, net of allowance for doubtful accounts | 83.3 | 79.7 | ||||||||
Inventories | 501.4 | 436.2 | ||||||||
Prepaid expenses and other current assets | 145.7 | 132.9 | ||||||||
Total current assets | 1,775.8 | 1,488.2 | ||||||||
Property, plant, and equipment, at cost, net of accumulated depreciation and amortization | 390.2 | 371.5 | ||||||||
Operating lease right-of-use | 222.8 | 189.5 | ||||||||
Marketing-related intangibles and other intangible assets, net | 313.3 | 310.1 | ||||||||
Goodwill | 100.5 | 91.5 | ||||||||
Other assets | 273.5 | 227.8 | ||||||||
Total assets | $ | 3,076.1 | $ | 2,678.6 | ||||||
LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 88.7 | $ | 81.6 | ||||||
Royalty overrides | 358.2 | 294.1 | ||||||||
Current portion of long-term debt | 22.9 | 24.1 | ||||||||
Other current liabilities | 657.5 | 564.6 | ||||||||
Total current liabilities | 1,127.3 | 964.4 | ||||||||
Long-term debt, net of current portion | 2,405.5 | 1,778.9 | ||||||||
Non-current operating lease liabilities | 206.7 | 169.9 | ||||||||
Other non-current liabilities | 192.7 | 155.4 | ||||||||
Total liabilities | 3,932.2 | 3,068.6 | ||||||||
Commitments and contingencies | 0 | 0 | ||||||||
Shareholders’ deficit: | ||||||||||
Common shares, $0.0005 par value; 2.0 b illion shares authorized; 120.1 million (2020) and 137.4 million (2019) shares outstanding | 0.1 | 0.1 | ||||||||
Paid-in capital in excess of par value | 342.3 | 366.6 | ||||||||
Accumulated other comprehensive loss | (182.2 | ) | (212.5 | ) | ||||||
Accumulated deficit | (687.4 | ) | (215.3 | ) | ||||||
Treasury stock, at cost, 10.0 million (2020) and 10.0 million (2019) shares | (328.9 | ) | (328.9 | ) | ||||||
Total shareholders’ deficit | (856.1 | ) | (390.0 | ) | ||||||
Total liabilities and shareholders’ deficit | $ | 3,076.1 | $ | 2,678.6 | ||||||
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (In millions, except per share amounts) |
| |||||||||
Net sales |
| $ | 4,427.7 |
|
| $ | 4,488.4 |
|
| $ | 4,469.0 |
|
Cost of sales |
|
| 848.6 |
|
|
| 854.6 |
|
|
| 856.0 |
|
Gross profit |
|
| 3,579.1 |
|
|
| 3,633.8 |
|
|
| 3,613.0 |
|
Royalty overrides |
|
| 1,254.2 |
|
|
| 1,272.6 |
|
|
| 1,251.4 |
|
Selling, general and administrative expenses |
|
| 1,758.6 |
|
|
| 1,966.9 |
|
|
| 1,784.5 |
|
Other operating income |
|
| (50.8 | ) |
|
| (63.8 | ) |
|
| (6.5 | ) |
Operating income |
|
| 617.1 |
|
|
| 458.1 |
|
|
| 583.6 |
|
Interest expense |
|
| 160.8 |
|
|
| 99.3 |
|
|
| 100.5 |
|
Interest income |
|
| 14.5 |
|
|
| 5.9 |
|
|
| 5.6 |
|
Other (income) expense, net |
|
| (0.4 | ) |
|
| — |
|
|
| 2.3 |
|
Income before income taxes |
|
| 471.2 |
|
|
| 364.7 |
|
|
| 486.4 |
|
Income taxes |
|
| 257.3 |
|
|
| 104.7 |
|
|
| 147.3 |
|
NET INCOME |
| $ | 213.9 |
|
| $ | 260.0 |
|
| $ | 339.1 |
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 2.70 |
|
| $ | 3.13 |
|
| $ | 4.11 |
|
Diluted |
| $ | 2.58 |
|
| $ | 3.02 |
|
| $ | 3.97 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 79.2 |
|
|
| 83.0 |
|
|
| 82.6 |
|
Diluted |
|
| 82.9 |
|
|
| 86.1 |
|
|
| 85.3 |
|
Year Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
(in millions, except per share amounts) | ||||||||||||
Net sales | $ | 5,541.8 | $ | 4,877.1 | $ | 4,891.8 | ||||||
Cost of sales | 1,150.6 | 958.0 | 919.3 | |||||||||
Gross profit | 4,391.2 | 3,919.1 | 3,972.5 | |||||||||
Royalty overrides | 1,690.1 | 1,448.2 | 1,364.0 | |||||||||
Selling, general, and administrative expenses | 2,075.0 | 1,940.3 | 1,955.2 | |||||||||
Other operating income | (14.5 | ) | (37.5 | ) | (29.8 | ) | ||||||
Operating income | 640.6 | 568.1 | 683.1 | |||||||||
Interest expense | 133.0 | 153.0 | 181.0 | |||||||||
Interest income | 8.8 | 20.6 | 19.4 | |||||||||
Other expense (income), net | — | (15.7 | ) | 57.3 | ||||||||
Income before income taxes | 516.4 | 451.4 | 464.2 | |||||||||
Income taxes | 143.8 | �� | 140.4 | 167.6 | ||||||||
Net income | $ | 372.6 | $ | 311.0 | $ | 296.6 | ||||||
Earnings per share: | ||||||||||||
Basic | $ | 2.83 | $ | 2.26 | $ | 2.12 | ||||||
Diluted | $ | 2.77 | $ | 2.20 | $ | 1.98 | ||||||
Weighted-average shares outstanding: | ||||||||||||
Basic | 131.5 | 137.4 | 140.2 | |||||||||
Diluted | 134.5 | 141.6 | 149.5 |
|
| Year Ended December 31, 2017 |
|
| Year Ended December 31, 2016 |
|
| Year Ended December 31, 2015 |
| |||
|
| (In millions) |
| |||||||||
Net income |
| $ | 213.9 |
|
| $ | 260.0 |
|
| $ | 339.1 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of income taxes of $5.7 (2017), $5.2 (2016), and $(7.2) (2015) |
|
| 44.9 |
|
|
| (32.5 | ) |
|
| (86.6 | ) |
Unrealized loss on derivatives, net of income taxes of $— (2017), $(0.3) (2016), and $(0.6) (2015) |
|
| (5.2 | ) |
|
| (7.0 | ) |
|
| (0.6 | ) |
Other, net of income taxes of $— (2017), $0.1 (2016), and $(0.1) (2015) |
|
| — |
|
|
| (0.1 | ) |
|
| (0.1 | ) |
Total other comprehensive income (loss) |
|
| 39.7 |
|
|
| (39.6 | ) |
|
| (87.3 | ) |
Total comprehensive income |
| $ | 253.6 |
|
| $ | 220.4 |
|
| $ | 251.8 |
|
Year Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
(in millions) | ||||||||||||
Net income | $ | 372.6 | $ | 311.0 | $ | 296.6 | ||||||
Other comprehensive income (loss): | ||||||||||||
Foreign currency translation adjustment, net of income taxes of $(2.0) (2020), $0.1 (2019), and $(2.7) (2018) | 33.2 | — | (41.0 | ) | ||||||||
Unrealized loss on derivatives, net of income taxes of $(0.4) (2020), $0 | (2.9 | ) | (2.7 | ) | (3.4 | ) | ||||||
Total other comprehensive income (loss) | 30.3 | (2.7 | ) | (44.4 | ) | |||||||
Total comprehensive income | $ | 402.9 | $ | 308.3 | $ | 252.2 | ||||||
|
| Common Shares |
|
| Treasury Stock |
|
| Paid-in Capital in Excess of par Value |
|
| Accumulated Other Comprehensive Loss |
|
| Accumulated Deficit |
|
| Total Shareholders’ (Deficit) Equity |
| ||||||
|
| (In millions, except per share amounts) |
| |||||||||||||||||||||
Balance as of December 31, 2014 |
| $ | 0.1 |
|
| $ | — |
|
| $ | 409.1 |
|
| $ | (78.2 | ) |
| $ | (665.4 | ) |
| $ | (334.4 | ) |
Issuance of 1.0 million common shares from exercise of stock options, SARs, restricted stock units, employee stock purchase plan, and other |
|
| — |
|
|
|
|
|
|
| 2.8 |
|
|
|
|
|
|
|
|
|
|
| 2.8 |
|
Excess tax deficit from exercise of stock options, SARs and restricted stock grants |
|
|
|
|
|
|
|
|
|
| (2.0 | ) |
|
|
|
|
|
|
|
|
|
| (2.0 | ) |
Additional capital from share-based compensation |
|
|
|
|
|
|
|
|
|
| 44.9 |
|
|
|
|
|
|
|
|
|
|
| 44.9 |
|
Repurchases of 0.4 million common shares |
|
| — |
|
|
|
|
|
|
| (16.6 | ) |
|
|
|
|
|
|
|
|
|
| (16.6 | ) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 339.1 |
|
|
| 339.1 |
|
Foreign currency translation adjustment, net of income taxes of $(7.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (86.6 | ) |
|
|
|
|
|
| (86.6 | ) |
Unrealized loss on derivatives, net of income taxes of $(0.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (0.6 | ) |
|
|
|
|
|
| (0.6 | ) |
Other, net of income taxes of $(0.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (0.1 | ) |
|
|
|
|
|
| (0.1 | ) |
Balance as of December 31, 2015 |
| $ | 0.1 |
|
| $ | — |
|
| $ | 438.2 |
|
| $ | (165.5 | ) |
| $ | (326.3 | ) |
| $ | (53.5 | ) |
Issuance of 0.6 million common shares from exercise of stock options, SARs, restricted stock units, employee stock purchase plan, and other |
|
| — |
|
|
|
|
|
|
| 2.0 |
|
|
|
|
|
|
|
|
|
|
| 2.0 |
|
Excess tax benefit from exercise of stock options, SARs and restricted stock grants |
|
|
|
|
|
|
|
|
|
| 0.4 |
|
|
|
|
|
|
|
|
|
|
| 0.4 |
|
Additional capital from share-based compensation |
|
|
|
|
|
|
|
|
|
| 40.2 |
|
|
|
|
|
|
|
|
|
|
| 40.2 |
|
Repurchases of 0.2 million common shares |
|
| — |
|
|
|
|
|
|
| (13.2 | ) |
|
|
|
|
|
|
|
|
|
| (13.2 | ) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 260.0 |
|
|
| 260.0 |
|
Foreign currency translation adjustment, net of income taxes of $5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (32.5 | ) |
|
|
|
|
|
| (32.5 | ) |
Unrealized loss on derivatives, net of income taxes of $(0.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (7.0 | ) |
|
|
|
|
|
| (7.0 | ) |
Other, net of income taxes of $0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (0.1 | ) |
|
|
|
|
|
| (0.1 | ) |
Balance as of December 31, 2016 |
| $ | 0.1 |
|
| $ | — |
|
| $ | 467.6 |
|
| $ | (205.1 | ) |
| $ | (66.3 | ) |
| $ | 196.3 |
|
Issuance of 1.9 million common shares from exercise of stock options, SARs, restricted stock units, employee stock purchase plan, and other |
|
| — |
|
|
|
|
|
|
| 2.1 |
|
|
|
|
|
|
|
|
|
|
| 2.1 |
|
Additional capital from share-based compensation |
|
|
|
|
|
|
|
|
|
| 42.1 |
|
|
|
|
|
|
|
|
|
|
| 42.1 |
|
Repurchases of 12.7 million common shares |
|
| — |
|
|
| (328.6 | ) |
|
| (101.7 | ) |
|
|
|
|
|
| (425.4 | ) |
|
| (855.7 | ) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 213.9 |
|
|
| 213.9 |
|
Foreign currency translation adjustment, net of income taxes of $5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 44.9 |
|
|
|
|
|
|
| 44.9 |
|
Unrealized loss on derivatives, net of income taxes of $— |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5.2 | ) |
|
|
|
|
|
| (5.2 | ) |
Cumulative effect of accounting change and other, net of income taxes of $— |
|
|
|
|
|
|
|
|
|
| (2.8 | ) |
|
| — |
|
|
| 29.7 |
|
|
| 26.9 |
|
Balance as of December 31, 2017 |
| $ | 0.1 |
|
| $ | (328.6 | ) |
| $ | 407.3 |
|
| $ | (165.4 | ) |
| $ | (248.1 | ) |
| $ | (334.7 | ) |
Common Shares | Treasury Stock | Paid-in Capital in Excess of Par Value | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Shareholders’ Deficit | |||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||
Balance as of December 31, 2017 | $ | 0.1 | $ | (328.6 | ) | $ | 407.3 | $ | (165.4 | ) | $ | (248.1 | ) | $ | (334.7 | ) | ||||||||||||||
Issuance of 6.3 common shares from exercise of stock options, SARs, restricted stock units, employee stock purchase plan, and other | — | 2.5 | 2.5 | |||||||||||||||||||||||||||
Additional capital from share-based compensation | 35.5 | 35.5 | ||||||||||||||||||||||||||||
Repurchases of 14.3 common shares | — | (0.3 | ) | (173.4 | ) | (572.4 | ) | (746.1 | ) | |||||||||||||||||||||
Forward Counterparties’ delivery of 13.9 common shares to the Company | — | — | ||||||||||||||||||||||||||||
Issuance of convertible senior notes | 136.7 | 136.7 | ||||||||||||||||||||||||||||
Repayment of convertible senior notes | (123.0 | ) | (123.0 | ) | ||||||||||||||||||||||||||
Unwind of capped call transactions | 55.9 | 55.9 | ||||||||||||||||||||||||||||
Net income | 296.6 | 296.6 | ||||||||||||||||||||||||||||
Foreign currency translation adjustment, net of income taxes of $(2.7) | (41.0 | ) | (41.0 | ) | ||||||||||||||||||||||||||
Unrealized loss on derivatives, net of income taxes of $0 | (3.4 | ) | (3.4 | ) | ||||||||||||||||||||||||||
Cumulative effect of accounting change | (2.4 | ) | (2.4 | ) | ||||||||||||||||||||||||||
Balance as of December 31, 2018 | 0.1 | (328.9 | ) | 341.5 | (209.8 | ) | (526.3 | ) | (723.4 | ) | ||||||||||||||||||||
Issuance of 1.0 common shares from exercise of stock options, SARs, restricted stock units, employee stock purchase plan, and other | — | 3.2 | 3.2 | |||||||||||||||||||||||||||
Additional capital from share-based compensation | 38.6 | 38.6 | ||||||||||||||||||||||||||||
Repurchases of 0.4 common shares | — | (16.7 | ) | (16.7 | ) | |||||||||||||||||||||||||
Forward Counterparties’ delivery of 6.0 common shares to the Company | — | — | — | |||||||||||||||||||||||||||
Net income | 311.0 | 311.0 | ||||||||||||||||||||||||||||
Foreign currency translation adjustment, net of income taxes of $0.1 | — | — | ||||||||||||||||||||||||||||
Unrealized loss on derivatives, net of income taxes of $0 | (2.7 | ) | (2.7 | ) | ||||||||||||||||||||||||||
Balance as of December 31, 2019 | 0.1 | (328.9 | ) | 366.6 | (212.5 | ) | (215.3 | ) | (390.0 | ) | ||||||||||||||||||||
Issuance of 1.7 common shares from exercise of stock options, SARs, restricted stock units, employee stock purchase plan, and other | — | 3.5 | 3.5 | |||||||||||||||||||||||||||
Additional capital from share-based compensation | 51.0 | 51.0 | ||||||||||||||||||||||||||||
Repurchases of 19.0 common shares | — | (78.8 | ) | (844.7 | ) | (923.5 | ) | |||||||||||||||||||||||
Net income | 372.6 | 372.6 | ||||||||||||||||||||||||||||
Foreign currency translation adjustment, net of income taxes of $(2.0) | 33.2 | 33.2 | ||||||||||||||||||||||||||||
Unrealized loss on derivatives, net of income taxes of $(0.4) | (2.9 | ) | (2.9 | ) | ||||||||||||||||||||||||||
Balance as of December 31, 2020 | $ | 0.1 | $ | (328.9 | ) | $ | 342.3 | $ | (182.2 | ) | $ | (687.4 | ) | $ | (856.1 | ) | ||||||||||||||
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (In millions) |
| |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 213.9 |
|
| $ | 260.0 |
|
| $ | 339.1 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 99.8 |
|
|
| 98.3 |
|
|
| 98.0 |
|
Share-based compensation expenses |
|
| 42.1 |
|
|
| 40.2 |
|
|
| 44.9 |
|
Non-cash interest expense |
|
| 60.2 |
|
|
| 55.7 |
|
|
| 56.2 |
|
Deferred income taxes |
|
| 97.8 |
|
|
| (36.4 | ) |
|
| (38.2 | ) |
Inventory write-downs |
|
| 20.7 |
|
|
| 15.8 |
|
|
| 25.3 |
|
Foreign exchange transaction loss |
|
| 2.4 |
|
|
| 3.7 |
|
|
| 26.6 |
|
Other |
|
| 1.9 |
|
|
| (11.7 | ) |
|
| 10.8 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
| (22.2 | ) |
|
| — |
|
|
| (6.2 | ) |
Inventories |
|
| 37.9 |
|
|
| (71.6 | ) |
|
| (30.5 | ) |
Prepaid expenses and other current assets |
|
| 38.3 |
|
|
| 0.8 |
|
|
| 19.8 |
|
Accounts payable |
|
| (5.0 | ) |
|
| (1.3 | ) |
|
| 6.0 |
|
Royalty overrides |
|
| 6.0 |
|
|
| 20.9 |
|
|
| 21.6 |
|
Other current liabilities |
|
| (17.1 | ) |
|
| 12.4 |
|
|
| 73.5 |
|
Other |
|
| 14.1 |
|
|
| (19.5 | ) |
|
| (18.2 | ) |
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
| 590.8 |
|
|
| 367.3 |
|
|
| 628.7 |
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (95.5 | ) |
|
| (143.4 | ) |
|
| (79.0 | ) |
Investments in Venezuelan bonds |
| — |
|
|
| — |
|
|
| (0.1 | ) | |
Other |
|
| (2.3 | ) |
|
| 2.1 |
|
|
| 5.7 |
|
NET CASH USED IN INVESTING ACTIVITIES |
|
| (97.8 | ) |
|
| (141.3 | ) |
|
| (73.4 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from senior secured credit facility, net of discount |
|
| 1,274.0 |
|
|
| 200.0 |
|
|
| — |
|
Principal payments on senior secured credit facility and other debt |
|
| (494.5 | ) |
|
| (438.8 | ) |
|
| (227.6 | ) |
Debt issuance costs |
|
| (22.6 | ) |
|
| — |
|
|
| (6.2 | ) |
Share repurchases |
|
| (844.2 | ) |
|
| (13.2 | ) |
|
| (16.6 | ) |
Other |
|
| 2.1 |
|
|
| (0.3 | ) |
|
| 0.4 |
|
NET CASH USED IN FINANCING ACTIVITIES |
|
| (85.2 | ) |
|
| (252.3 | ) |
|
| (250.0 | ) |
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
| 27.0 |
|
|
| (19.5 | ) |
|
| (60.9 | ) |
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
| 434.8 |
|
|
| (45.8 | ) |
|
| 244.4 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
|
| 844.0 |
|
|
| 889.8 |
|
|
| 645.4 |
|
CASH AND CASH EQUIVALENTS, END OF YEAR |
| $ | 1,278.8 |
|
| $ | 844.0 |
|
| $ | 889.8 |
|
CASH PAID DURING THE YEAR |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 100.7 |
|
| $ | 45.4 |
|
| $ | 50.5 |
|
Income taxes paid |
| $ | 158.8 |
|
| $ | 162.9 |
|
| $ | 168.4 |
|
Year Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
(in millions) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 372.6 | $ | 311.0 | $ | 296.6 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 100.3 | 97.7 | 100.4 | |||||||||
Share-based compensation expenses | 51.0 | 38.6 | 35.5 | |||||||||
Non-cash interest expense | 26.7 | 43.7 | 63.8 | |||||||||
Deferred income taxes | 2.0 | 15.4 | (8.1 | ) | ||||||||
Inventory write-downs | 20.6 | 19.1 | 17.4 | |||||||||
Foreign exchange transaction loss | 9.9 | 2.1 | 8.0 | |||||||||
Loss on extinguishment of debt | — | — | 48.5 | |||||||||
Other | 5.3 | (7.9 | ) | 7.1 | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Receivables | (5.8 | ) | (14.4 | ) | 2.8 | |||||||
Inventories | (76.6 | ) | (68.6 | ) | (83.3 | ) | ||||||
Prepaid expenses and other current assets | (11.9 | ) | 28.3 | (5.1 | ) | |||||||
Accounts payable | 5.5 | 0.1 | 21.7 | |||||||||
Royalty overrides | 61.2 | 11.5 | 22.8 | |||||||||
Other current liabilities | 77.6 | (5.5 | ) | 106.8 | ||||||||
Other | (9.8 | ) | (13.6 | ) | 13.5 | |||||||
Net cash provided by operating activities | 628.6 | 457.5 | 648.4 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of property, plant, and equipment | (112.0 | ) | (106.1 | ) | (84.0 | ) | ||||||
Other | (11.2 | ) | (1.9 | ) | 0.1 | |||||||
Net cash used in investing activities | (123.2 | ) | (108.0 | ) | (83.9 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Borrowings from senior secured credit facility and other debt, net of discount | 31.5 | — | 998.1 | |||||||||
Principal payments on senior secured credit facility and other debt | (24.5 | ) | (24.5 | ) | (1,237.4 | ) | ||||||
Proceeds from convertible senior notes | — | — | 550.0 | |||||||||
Repayment of convertible senior notes | — | (675.0 | ) | (582.5 | ) | |||||||
Proceeds from senior notes | 600.0 | — | 400.0 | |||||||||
Debt issuance costs | (7.9 | ) | — | (29.9 | ) | |||||||
Share repurchases | (923.5 | ) | (16.7 | ) | (750.3 | ) | ||||||
Proceeds from settlement of capped call transactions | — | — | 55.9 | |||||||||
Other | 3.5 | 3.2 | 3.0 | |||||||||
Net cash used in financing activities | (320.9 | ) | (713.0 | ) | (593.1 | ) | ||||||
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 22.0 | (4.0 | ) | (51.9 | ) | |||||||
Net change in cash, cash equivalents, and restricted cash | 206.5 | (367.5 | ) | (80.5 | ) | |||||||
Cash, cash equivalents, and restricted cash, beginning of period | 847.5 | 1,215.0 | 1,295.5 | |||||||||
Cash, cash equivalents, and restricted cash, end of period | $ | 1,054.0 | $ | 847.5 | $ | 1,215.0 | ||||||
Cash paid during the year: | ||||||||||||
Interest paid | $ | 78.9 | $ | 114.3 | $ | 106.1 | ||||||
Income taxes paid | $ | 138.2 | $ | 147.9 | $ | 158.9 | ||||||
In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. This ASU clarified the requirements for assessing whether contingent put or call options that can accelerate the payment of principal on debt instruments are clearly and closely related (i.e. an entity is required to assess whether the economic characteristics and risks of embedded put or call options are clearly and closely related to those of their debt hosts only in accordance with the four-step decision sequence of FASB Accounting Standards Codification, or ASC 815, Derivatives and Hedging). An entity should no longer assess whether the event that triggers the ability to exercise a put or call option is related to interest rates or credit risk of the entity. In the first quarter of 2017, the Company adopted and applied the standard to its applicable financial instruments. The adoption of this guidance had no financial impact on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. This ASU provides guidance clarifying that the novation of a derivative contract (i.e. a change in counterparty) in a hedge accounting relationship does not, in and of itself, require dedesignation of that hedge accounting relationship. If all of the other hedge accounting criteria are met, including the expectation that the hedge will be highly effective when the creditworthiness of the new counterpart to the derivative contract is considered, the hedging relationship will continue uninterrupted. The adoption of this guidance during the first quarter of 2017 had no financial impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new revenue recognition standard provides a five-step analysis of contracts to determine when and how revenue is recognized. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB deferred the effective date of ASU No. 2014-09 for all entities by one year to annual reporting periods beginning after December 15, 2017. The FASB has issued several updates subsequently, including implementation guidance on principal versus agent considerations, on how an entity should account for licensing arrangements with customers, and to improve guidance on assessing collectability, presentation of sales taxes, noncash consideration, and contract modifications and completed contracts at transition. The amendments in this series of updates shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company plans to adopt Topic 606, with a date of initial application of January 1, 2018 using the modified retrospective method applied to all contracts existing as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 will be presented under Topic 606, while prior period amounts will not be adjusted and will be reported in accordance with Topic 605. The financial statement impact of the adoption of the new standard is not expected to be material.
Below is a summary of the Company’s analysis under Topic 606:
The Company will generally continue to recognize revenue when product is delivered to its Members. For China independent service providers, and for third party importers utilized in certain other countries where sales historically have not been material, the Company will continue to recognize revenue based on the Company’s estimate of when the service provider or third party importer sells the products because the Company is deemed to be the principal party of these product sales under Topic 606 due to the additional selling and operating requirements relating to pricing of products, conducting business with physical locations, and other selling and marketing activities required of the service providers and third party importers; this timing difference relating to the Company recognizing revenues when these third party entities sell the products compared to when the Company delivers the products to them did not have a material impact to the Company’s consolidated net sales for the periods presented.
The Company’s Members, excluding its China independent service providers, may receive distributor allowances, which are comprised of discounts, rebates and wholesale commission payments from the Company. Pursuant to Topic 606, the distributor allowances resulting from the Company’s sales of its products to its Members will continue to be recorded against net sales because the distributor allowances represent discounts from the suggested retail price.
The Company compensates its sales leader Members with royalty overrides for services rendered, relating to the development, retention, and management of their sales organizations. Royalty overrides are payable based on achieved sales volume. Royalty overrides will continue to be classified as an operating expense reflecting the services provided to the Company. The Company compensates its China independent service providers and third party importers utilized in certain other countries for providing marketing, selling, and customer support services. Under Topic 606, as the Company is the principal party of the product sales as described above, the service fees payable to China independent service providers and the compensation received by third party importers for the services they provide will be recorded within Selling, general & administrative expenses. Currently, under Topic 605, the service fees payable to its China independent service providers are similarly recognized within Selling, general & administrative expenses as they will be under Topic 606. However, under Topic 605, the compensation received by third party importers for the services they provide, which represents the discount provided to them, is recorded as a reduction to net sales, which differs from the treatment under Topic 606 as described above. This change in the accounting treatment under Topic 606 of the compensation for services provided by the Company’s third party importers will not impact the Company’s consolidated net income and is not material to the Company’s consolidated net sales for the fiscal years presented.
The Company also reviewed its United States business and the changes required to be made pursuant to the FTC consent order. The Company has concluded that there will be no material financial impact under Topic 606 and the Company will continue to recognize revenues when it delivers the products to its United States Members; its distributor allowances, inclusive of discounts and wholesale commissions, will continue to be recorded as a reduction to net sales, and royalty overrides will continue to be classified as an operating expense under Topic 606.
Shipping and handling services relating to product sales will be recognized as fulfillment activities on the Company’s performance obligation to transfer products and will therefore be recorded within net sales as part of product sales and will not be considered as separate revenues under Topic 606. Shipping and handling costs paid by the Company are currently included in cost of sales and these costs will continue to be recorded to cost of sales under Topic 606.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10):Recognition and Measurement of Financial Assets and Financial Liabilities. The updated guidance enhances the reporting model for financial instruments by modifying how entities measure and recognize equity investments and present changes in the fair value of financial liabilities, and by simplifying the disclosure guidance for financial instruments. The amendments in this update are effective for fiscal years beginning after December 15, 2017. The amendments in this update should be applied prospectively. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and subsequently issued additional updates to Topic 842.The updated guidance requires lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. A modified retrospective approach must be applied for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is evaluating the potential impact of this adoption on its consolidated financial statements; however, increases in both assets and liabilities are expected.
In March 2016, the FASB issued ASU No. 2016-04, Liabilities — Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products. This ASU requires entities that sell prepaid stored-value products redeemable for goods, services or cash at third-party merchants to recognize breakage (i.e. the value that is ultimately not redeemed by the consumer) in a way that is consistent with how it will be recognized under the new revenue recognition standard. Under current U.S. GAAP, there is diversity in practice in how entities account for breakage that results when a consumer does not redeem the entire product balance. This ASU clarifies that an entity’s liability for prepaid stored-value products within its scope meets the definition of a financial liability. The amendments in this update are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The amendment may be applied using either a modified retrospective approach or a full retrospective approach. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instrument — Credit Losses (Topic
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU provides clarification on eight specific cash flow issues regarding presentation and classification in the statement of cash flows with the objective of reducing the existing diversity in practice. The amendments in this update are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The amendments in this update should be applied retrospectively. The adoption of this guidance willduring the first quarter of 2020 did not have a material impact on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this update do not change U.S. GAAP for the pre-tax effects of an intra-entity asset transfer under Topic 810, Consolidation, or for an intra-entity transfer of inventory. The amendments in this update are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU requires that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows. The amendments in this update are effective for reporting periods beginning after December 15, 2017, with early adoption permitted, and must be applied retrospectively. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements but will result in a change in the presentation of restricted cash and restricted cash equivalents in the Company’s consolidated statement of cash flows.
In January 2017, the FASB issued ASUCompany is evaluating the potential impactadoption of this adoptionguidance during the first quarter of 2020 did not have a material impact on itsthe Company’s consolidated financial statements.
Reclassifications
In order to improve and simplify the Company’s financial statements, the following reclassifications have been made:
Certain reclassifications were made to the prior period consolidated balance sheets, the consolidated statements
Option Contracts, and Interest Rate Swaps
institution as of December 31, 2020 and 2019.
|
|
The fair value of the outstanding borrowings on the Company’s term loan A under its senior secured credit facility are recorded at carrying value, and their fair value is determined by utilizing
The outstanding borrowings on the Company’s term loan B under its senior secured credit facility are recorded at carrying value, and their fair value is determined by utilizing
The Company’s senior notes issued in August 2018, or the 2026 Notes, and senior notes issued in May 2020, or the 2025 Notes, are recorded at carrying value, and their fair valuevalues are determined by utilizing
Inventories
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Property, plant and equipment — at cost: |
|
|
|
|
|
|
|
|
Land and building |
| $ | 51.0 |
|
| $ | 51.0 |
|
Furniture and fixtures |
|
| 26.7 |
|
|
| 25.9 |
|
Equipment |
|
| 803.5 |
|
|
| 719.8 |
|
Building and leasehold improvements |
|
| 199.0 |
|
|
| 185.7 |
|
|
|
| 1,080.2 |
|
|
| 982.4 |
|
Less: accumulated depreciation and amortization |
|
| (702.7 | ) |
|
| (604.4 | ) |
Net property, plant and equipment |
| $ | 377.5 |
|
| $ | 378.0 |
|
December 31, | ||||||||
2020 | 2019 | |||||||
(in millions) | ||||||||
Property, plant, and equipment, at cost: | ||||||||
Land and buildings | $ | 51.1 | $ | 51.1 | ||||
Furniture and fixtures | 26.1 | 26.2 | ||||||
Equipment | 1,023.7 | 931.3 | ||||||
Building and leasehold improvements | 222.8 | 208.2 | ||||||
Total property, plant, and equipment, at cost | 1,323.7 | 1,216.8 | ||||||
Less: accumulated depreciation and amortization | (933.5 | ) | (845.3 | ) | ||||
Property, plant, and equipment, at cost, net of accumulated depreciation and amortization | $ | 390.2 | $ | 371.5 | ||||
one1 of its office buildings in Torrance, California, which it had previously leased, for approximately $29.6 million. The Company allocated $16.9 million and $11.6 million, which was net of the deferred rent liability of $1.1 million, between buildings and land, respectively, based on their relative fair values. As of December 31, 20172020 and 2016,2019, these amounts have been reflected in property, plant, and equipment onwithin the Company’s accompanying consolidated balance sheets.
Other Assets
Other assets onor impairments of goodwill. As of December 31, 2020 and 2019, the goodwill balance was $100.5 million and $91.5 million, respectively. The cash paid for the immaterial acquisition during 2020 is reflected as other cash flows from investing activities within the Company’s accompanyingconsolidated statements of cash flows.
December 31, | ||||||||
2020 | 2019 | |||||||
(in millions) | ||||||||
Cash and cash equivalents | $ | 1,045.4 | $ | 839.4 | ||||
Restricted cash included in Prepaid expenses and other current assets | 2.5 | 2.5 | ||||||
Restricted cash included in Other assets | 6.1 | 5.6 | ||||||
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | 1,054.0 | $ | 847.5 | ||||
cash deposits that are required due to the business operating requirements in those jurisdictions.
The Company has made an accounting policy election to account for global intangible 2020 as the annual requirement was met.2017 Tax Cuts and Jobs Act of 2017, which containscontained several key tax provisions that affectaffected the Company, including, but not limited to, aiswas required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring its U.S. deferred tax assets and liabilities as well as reassessing the net realizability of its deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118,allowsallowed the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. See Note 12,Overrides,overrides, is capped if the Company does not meet an annual requirement as described in the consent order discussed in more detail in Note 7, year end As of December 31, 2017, theThe Company believesdetermined that the cap to distributor compensation will not be applicable for the year ended December 31, 2017.the effective portion of the unrealized gains or losses on derivatives, and unrealized gains or losses on available-for-sale investments.derivatives. See Note 8,(Deficit) EquityDeficitThePrior to January 1, 2019, the Company recognizesrecognized rent holiday periods on a straight-line basis over the lease term beginning when the Company hashad the right to the leased space. The space; the
Prior to January 1, 2019, the Company did not recognize its operating leases on its balance sheet. Beginning January 1, 2019, the Company recognizes a right of use asset and lease liability within its consolidated balance sheets for operating leases with terms greater than twelve months. The initial measurement of the lease liability is measured at the present value of lease payments not yet paid discounted generally using the Company’s incremental borrowing rate at the commencement date. Leases with an initial term of twelve months or less are not recorded on the Company’s consolidated balance sheets, and the Company does not separate nonlease components from lease components.
On October 30, 2016, an arbitration tribunal awardedDuring the year ended December 31, 2019, the Company approximately $29.7also recognized $6.0 million in connection with the re-audit of the Company’s 2010 to 2012 financial statements after the resignation of KPMG as the Company’s independent registered public accounting firm. This amount has been recognized in other operating income within its consolidated statement of income related to the finalization of insurance recoveries in connection with the flooding at one of its warehouses in Mexico during September 2017, which damaged certain of the Company’s consolidated financial statements inventory stored within the warehouse. See Note 7,2016.
2018 for further discussion.
convertible notes.
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Weighted average shares used in basic computations |
|
| 79.2 |
|
|
| 83.0 |
|
|
| 82.6 |
|
Dilutive effect of exercise of equity grants outstanding |
|
| 3.7 |
|
|
| 3.1 |
|
|
| 2.7 |
|
Weighted average shares used in diluted computations |
|
| 82.9 |
|
|
| 86.1 |
|
|
| 85.3 |
|
Year Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
(in millions) | ||||||||||||
Weighted-average shares used in basic computations | 131.5 | 137.4 | 140.2 | |||||||||
Dilutive effect of exercise of equity grants outstanding | 3.0 | 3.5 | 6.3 | |||||||||
Dilutive effect of 2019 Convertible Notes | — | 0.7 | 3.0 | |||||||||
Weighted-average shares used in diluted computations | 134.5 | 141.6 | 149.5 | |||||||||
Productthird-party importers for the services they provide, which represents the discount provided to them, are recorded in selling, general, and administrative expenses within the Company’s consolidated statements of income.
uncertainty of revenue recognition and cash flows are similar among all 5 product categories. The Company defines its operating segments through 6 geographic regions. The effect of economic factors on the nature, amount, timing, and uncertainty of revenue recognition and cash flows are similar among the geographic regions within the Company’s Primary Reporting Segment. See Note 10,
finance software maintenance. During the yearsyear ended December 31, 2017, 2016, and 2015,2019, the Company recorded $2.3$5.9 million $20.8 million, and $17.3 million of
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Raw materials |
| $ | 44.2 |
|
| $ | 49.3 |
|
Work in process |
|
| 4.8 |
|
|
| 3.9 |
|
Finished goods |
|
| 292.2 |
|
|
| 318.1 |
|
Total |
| $ | 341.2 |
|
| $ | 371.3 |
|
December 31, | ||||||||
2020 | 2019 | |||||||
(in millions) | ||||||||
Raw materials | $ | 80.1 | $ | 48.7 | ||||
Work in process | 7.9 | 6.6 | ||||||
Finished goods | 413.4 | 380.9 | ||||||
Total | $ | 501.4 | $ | 436.2 | ||||
Long-term debt consists of the following:
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
| (In millions) |
| |||||
Borrowings under prior senior secured credit facility, carrying value |
| $ | — |
|
| $ | 410.0 |
|
Borrowings under new senior secured credit facility, carrying value |
|
| 1,190.2 |
|
|
| — |
|
Convertible senior notes, carrying value of liability component |
|
| 1,070.0 |
|
|
| 1,024.8 |
|
Other |
|
| 7.9 |
|
|
| 13.1 |
|
Total |
|
| 2,268.1 |
|
|
| 1,447.9 |
|
Less: current portion |
|
| 102.4 |
|
|
| 9.5 |
|
Long-term portion |
| $ | 2,165.7 |
|
| $ | 1,438.4 |
|
Senior Secured Credit Facility
On May 4, 2015,
December 31, | ||||||||||
2020 | 2019 | Balance Sheet Location | ||||||||
(in millions) | ||||||||||
ASSETS: | ||||||||||
Operating lease right-of-use | $ | 222.8 | $ | 189.5 | Operating lease right-of-use assets | |||||
Finance lease right-of-use | 0.5 | 1.0 | Property, plant, and equipment, at cost, net of accumulated depreciation and amortization(1) | |||||||
Total lease assets | $ | 223.3 | $ | 190.5 | ||||||
LIABILITIES: | ||||||||||
Current: | ||||||||||
Operating lease liabilities | $ | 35.5 | $ | 37.4 | Other current liabilities | |||||
Finance lease liabilities | 0.2 | 0.6 | Current portion of long-term debt | |||||||
Non-current: | ||||||||||
Operating lease liabilities | 206.7 | 169.9 | Non-current operating lease liabilities | |||||||
Finance lease liabilities | 0.3 | 0.5 | Long-term debt, net of current portion | |||||||
Total lease liabilities | $ | 242.7 | $ | 208.4 | ||||||
(1) | Finance lease assets are recorded net of accumulated amortization of $1.7 million and $1.3 million as of December 31, 2020 and 2019, respectively. |
Year Ended December 31, | ||||||||||
2020 | 2019 | |||||||||
(in millions) | ||||||||||
Operating lease cost(1)(2) | $ | 63.8 | $ | 65.7 | ||||||
Finance lease cost | ||||||||||
Amortization of right-of-use | 0.4 | 0.4 | ||||||||
Interest on lease liabilities | 0— | 0— | ||||||||
Net lease cost | $ | 64.2 | $ | 66.1 | ||||||
(1) | Includes short-term leases and variable lease costs, which were $11.0 million and $1.2 million, respectively, for the year ended December 31, 2020 and $11.2 million and $2.2 million, respectively, for the year ended December 31, 2019. Variable lease costs, which include items such as real estate taxes, common area maintenance, and changes based on an index or rate, are not included in the calculation of the right-of-use |
(2) | Amount includes $60.2 million and $62.3 million recorded to selling, general, and administrative expenses within the Company’s consolidated statements of income for the years ended December 31, 2020 and 2019, respectively, and $3.6 million and $3.4 million capitalized as part of the cost of another asset, which includes inventories, for the years ended December 31, 2020 and 2019, respectively. During the year ended December 31, 2018, the Company recognized rental expense of $61.1 million in selling, general, and administrative expenses within the Company’s consolidated statement of income pursuant to FASB ASC Topic 840, Leases |
Operating Leases(1) | Finance Leases | |||||||||
(in millions) | ||||||||||
2021 | $ | 44.6 | $ | 0.2 | ||||||
2022 | 47.9 | 0.2 | ||||||||
2023 | 31.7 | 0.1 | ||||||||
2024 | 30.4 | — | ||||||||
2025 | 23.6 | — | ||||||||
Thereafter | 127.1 | — | ||||||||
Total lease payments | 305.3 | 0.5 | ||||||||
Less: imputed interest | 63.1 | — | ||||||||
Present value of lease liabilities | $ | 242.2 | $ | 0.5 | ||||||
(1) | Operating lease payments exclude $23.7 million of legally binding minimum lease payments for leases signed but not yet commenced. |
December 31, | ||||||||
2020 | 2019 | |||||||
Weighted-average remaining lease term: | ||||||||
Operating leases | 8.3 years | 8.3 years | ||||||
Finance leases | 3.1 years | 3.2 years | ||||||
Weighted-average discount rate: | ||||||||
Operating leases | 5.5 | % | 5.6 | % | ||||
Finance leases | 5.1 | % | 5.4 | % |
Year Ended December 31, | ||||||||||
2020 | 2019 | |||||||||
(in millions) | ||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||
Operating cash flows for operating leases | $ | 50.3 | $ | 45.9 | ||||||
Operating cash flows for finance lease s | 0— | 0— | ||||||||
Financing cash flows for finance leases | 0.5 | 0.4 | ||||||||
Right-of-use | ||||||||||
Operating leases | 74.2 | 55.2 | ||||||||
Finance leases | 0.1 | 0.6 |
December 31, | ||||||||
2020 | 2019 | |||||||
(in millions) | ||||||||
Borrowings under senior secured credit facility, carrying value | $ | 976.5 | $ | 965.3 | ||||
2.625% convertible senior notes due 2024, carrying value of liability component | 460.6 | 437.4 | ||||||
7.875% senior notes due 2025, carrying value | 592.9 | — | ||||||
7.250% senior notes due 2026, carrying value | 395.9 | 395.3 | ||||||
Other | 2.5 | 5.0 | ||||||
Total | 2,428.4 | 1,803.0 | ||||||
Less: current portio n | 22.9 | 24.1 | ||||||
Long-term portion | $ | 2,405.5 | $ | 1,778.9 | ||||
Facility
The Term Loan was issued to the Lenders at a 2% discount, or $26.0 million. In connection with the Credit Facility, the Company also repaid the $410.0 million outstanding balance on its Prior Revolving Credit Facility. The Company incurred approximately $22.6 million of debt issuance costs in connection with the Credit Facility. The debt issuance costs and the discount are recorded on the Company’s consolidated balance sheet and are being amortized over the life of the Credit Facility using the effective interest method.
Borrowings under the Term Loan bearB most recently bore interest at either the eurocurrency rate plus a margin of 5.50% or the base rate plus a margin of 4.50%. Prior to August 15,, and the 2017 borrowings under the Revolving Credit Facility most recently bore interest at the eurocurrency rate plus a margin of 4.75% or the base rate plus a margin of 3.75%. After August 15, 2017, borrowings under the Revolving Credit Facility, depending on Herbalife’s consolidated leverage ratio, bear interest at either the eurocurrency rate plus a margin of either 4.50% or 4.75% or the base rate plus a margin of either 3.50% or 3.75%, based on the Company’s consolidated leverage ratio. The eurocurrency rate was based on adjusted LIBOR and was subject to a floor of 0.75%. The base rate representsrepresented the highest of the Federal Funds Rate plus 0.50%,
Facility.
OnFacility, the Company will not be required to make a mandatory prepayment in 2021 toward the 2018 Term Loan B.
2019.
During the year ended December 31, 2019, the Company recognized $58.9 million of interest expense relating to the 2018 Credit Facility, which included $0.2 million relating to
share.
During
Percentage | ||||
2022 | 103.938 | % | ||
2023 | 101.969 | % | ||
2024 and thereafter | 100.000 | % |
Percentage | ||||
2021 | 103.625 | % | ||
2022 | 101.813 | % | ||
2023 and thereafter | 100.000 | % |
In conjunction with the issuance of the Convertible Notes, during February 2014, the Company paid approximately $685.8 million to enter into prepaid forward share repurchase transactions, or the Forward Transactions, with certain financial institutions,only for disclosure purposes, which includes using a lattice model and paid approximately $123.8 million to enter into capped call transactions with respect(1) reviewing market data relating to its common shares,2025 Notes and 2026 Notes and comparable yield curves to determine its straight debt yield estimate, or the Capped Call Transactions, with certain financial institutions. See Note 8, Shareholders’ (Deficit) Equity, for additional discussion on the Forward Transactions and Capped Call Transactions entered into in conjunction with the issuance of these Convertible Notes.
During the years ended December 31, 2017, 2016, and 2015, the Company recognized $68.2 million, $65.3 million, and $61.7 million of interest expense(2) reviewing market data relating to the Convertible Notes, respectively, which included $41.2 million, $38.6 million, and $35.7 million relatingpublicly traded, senior, unsecured nonconvertible corporate bonds issued by companies with similar credit ratings in order to non-cash interest expense relating to thedetermine its straight debt discount, respectively, and $4.0 million, $3.8 million, $3.2 million relating to amortization of debt issuance costs, respectively.
yield estimate.
|
| Principal Payments |
| |
2018 |
| $ | 102.4 |
|
2019 |
|
| 1,250.0 |
|
2020 |
|
| 97.9 |
|
2021 |
|
| 97.5 |
|
2022 |
|
| 97.5 |
|
Thereafter |
|
| 739.4 |
|
Total |
| $ | 2,384.7 |
|
Principal Payments | |||||
(in millions) | |||||
2021 | $ | 22.9 | |||
2022 | 27.5 | ||||
2023 | 27.5 | ||||
2024 | 584.0 | ||||
2025 | 1,475.3 | ||||
Thereafter | 400.0 | ||||
Total | $ | 2,537.2 | |||
5. Lease Obligations
The Company has warehouse, office, furniture, fixtures and equipment leases, which expire at various dates through 2033. Under the lease agreements, the Company is also obligated to pay property taxes, insurance and maintenance costs.
Certain leases contain renewal options. Future minimum rental commitments for non-cancelable operating leases as of December 31, 2017 were as follows (in millions):
|
| Operating |
| |
2018 |
| $ | 51.6 |
|
2019 |
|
| 42.7 |
|
2020 |
|
| 30.2 |
|
2021 |
|
| 17.7 |
|
2022 |
|
| 13.6 |
|
Thereafter |
|
| 73.2 |
|
Total |
| $ | 229.0 |
|
The Company recognizes rental expense on a straight-line basis. Rental expense for the years ended December 31, 2017, 2016, and 2015, was $56.2 million, $53.4 million, and $58.0 million, respectively.
There was no material property, plant and equipment under capital leases included in property, plant and equipment on the accompanying consolidated balance sheets as of December 31, 2017 and December 31, 2016.
These
On May 7, 2010, the Company received an assessment from the Mexican Tax Administration Service in an amount equivalent to approximately $58.3 million, translated at the December 31, 2017 spot rate, for various items, the majority of which was VAT allegedly owed on certain of the Company’s products imported into Mexico during the years 2005 and 2006. This assessment is subject to interest and inflationary adjustments. On July 8, 2010, the Company initiated a formal administrative appeal process. On May 13, 2011, the Mexican Tax Administration Service issued a resolution on the Company’s administrative appeal. The resolution nullified the assessment. Since the Mexican Tax Administration Service can further review the tax audit findings and re-issue some or all of the original assessment, the Company commenced litigation in the Tax Court of Mexico in August 2011 to dispute the assertions made by the Mexican Tax Administration Service in the case. The Company received notification on February 6, 2015 that the Tax Court of Mexico nullified substantially all of the assessment. On March 18, 2015, the Mexican Tax Administration Service filed an appeal against the verdict with the Circuit Court. On August 27, 2015, the Circuit Court remanded the case back to the Tax Court of Mexico to reconsider a portion of the procedural decision that was adverse to the Mexican Tax Administration Service. The Company received notification on March 18, 2016 that the Tax Court of Mexico nullified a portion of the assessment and upheld a portion of the
original assessment. On August 25, 2016, the Company filed a further appeal of this decision to the Circuit Court. On April 6, 2017, the Circuit Court issued a verdict with the Company prevailing on some lesser issues and the Tax Administration Service prevailing on the core issue. On May 11, 2017, the Company filed a further appeal to the Supreme Court of Mexico. On June 14, 2017, the Supreme Court of Mexico agreed to hear the appeal. The Company believes that it has meritorious defenses if the assessment is reissued. The Company has not recognized a loss as the Company does not believe a loss is probable.
2020.
On March 26, 2015, the Office of the President of Mexico issued a decree relating to the application of VAT to nutritional supplements. The Company continues to believe its application of the VAT law in Mexico is correct. As of December 31, 2017, the Company has not recognized any losses as the Company, based on its current analysis and guidance from its advisors, does not believe a loss is probable. The Company continues to evaluate and monitor its situation as it develops, including whether it will make any changes to its operations in Mexico.
As previously disclosed, the Mexican Tax Administration Service has requested information related to the Company’s 2010 year. This information has been provided and the Tax Administration Service has now completed its income tax audit related to the 2010 year. The audit resulted in an insignificant assessment which the Company has paid. The Company does not plan to appeal the case.
The Company received a tax assessment in September 2009multiple years from the Federal Revenue Office of Brazil in an amount equivalent to approximately $2.1 million, translated at the December 31, 2017 spot rate, related to withholding/contributions based on payments to the Company’s Members during 2004. On December 28, 2010, the Company appealed this tax assessment to the Administrative CouncilMembers. The aggregate combined amount of Tax Appeals (2nd level administrative appeal). The Company believes it has meritorious defenses and it has not recognized a loss as the Company does not believe a lossall these assessments is probable. On March 6, 2014, the Company was notified of a similar audit of the 2011 year. In January 2016, the Company received a tax assessment for an amount equivalent to approximately $5.3$10.6 million, translated at the December 31, 20172020 spot rate, related to contributions based on payments to the Company’s Members during 2011.rate. The Company filed a first levelis currently litigating these assessments at the tax administrative appeal against most of the assessment on February 23, 2016, which was subsequently denied. On March 13, 2017, the Company appealed this tax assessment to the Administrative Council of Tax Appeals (2nd level administrative appeal).level. The Company has not accrued a loss for the majority of the assessmentassessments because the Company does not believe a loss is probable. The Company is currently unable to reasonably estimate the amount of the loss that may result from an unfavorable outcome if additional assessments for other periods were to be issued.
The Company’s Brazilian subsidiary pays ICMS-ST taxes on its product purchases, similar to VAT. As of December 31, 2017, the Company had $11.7 million of Brazil ICMS-ST, of which $4.4 million was within non-current other assets and $7.3 million was within prepaid expenses and other current assets on its consolidated balance sheet. The Company believes it will be able to utilize or recover these ICMS-ST credits in the future.
In addition, the Company is under an Indian income tax and transfer pricing audit for the fiscal year ended March
The Company is currently unable to reasonably estimate the amount of the loss that may result from an unfavorable outcome if additional assessments for other periods were to be issued.
distributor’s ability to open Nutrition Clubs in the United States. The Consent Order subjects the Company to certain audits by an independent compliance auditor for a period of seven years; imposes requirements on the Company regarding compliance certification and record creation and maintenance; and prohibits the Company, its affiliates and its distributors from making misrepresentations and misleading claims regarding, among other things, income and lavish lifestyles. The FTC and the independent compliance auditor have the right to inspect Company records and request additional compliance reports for purposes of conducting audits pursuant to the Consent Order. In September 2016, the Company and the FTC mutually selected Affiliated Monitors, Inc. to serve as the independent compliance auditor. The Company continues to monitor the impact of the Consent Order and, while the Company currently does not expect the settlement to have a long-term and materially adverse impact on its business and its Member base, the Company’s business and its Member base, particularly in the United States, may be negatively impacted as the Company and the Member base adjust to the changes.impacted. If the Company is unable to comply with the Consent Order then this could result in a material and adverse impact to the Company’s results of operations and financial condition.
The
Since late 2012, a short seller has made and continues to make allegations regardingChina. On September 27, 2019, the Company and its network marketing program. The Company believes these allegations are without merit and has vigorously defended itself against such claims, including proactively reaching outthe SEC entered into a settlement resolving this matter. Pursuant to governmental authorities about whatthe administrative order settling this matter, under which the Company believes is manipulative activity with respectneither admitted nor denied the SEC’s allegations (except as to its securities. Because of these allegations,the SEC’s jurisdiction), the Company agreed to cease and others have receiveddesist from committing or causing any violations and may receive additional regulatoryany future violations of Sections 17(a)(2) and governmental inquiries. For example,17(a)(3) of the Company hasSecurities Act and Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, and pay a $20 million civil penalty. The $20 million settlement amount, which had previously disclosed inquiries frombeen recorded as an accrued liability within the FTC, SEC and other governmental authorities. In the future, governmental authorities may determine to seek information from the Company and other persons relating to these same or other allegations. If the Company believes any governmental or regulatory inquiry or investigation is or becomes material, it will be disclosed individually. Consistent with its policies, the Company has cooperated and will continue to fully cooperate with any governmental or regulatory inquiries or investigations.
Company’s consolidated balance sheet as of June 30, 2019, was paid in October 2019.
In September 2017, one The Company is currently unable to reasonably estimate the amount of the Company’s warehouses located in Mexico sustained flooding which damaged certain inventory stored within the warehouse. The Company maintains insurance coverage with third party carriers on the affected property. As of December 31, 2017, the Company has recorded a loss relating to the damaged inventory and has recognizedthat may result from an equal offsetting receivable for insurance recoveries. This event did not have a material negative impact to its Mexico operations and the Company’s consolidated financial statements.
unfavorable outcome.
Deficit
option to net share settle these warrants if they were exercised in the future. On November 10, 2020, the Company’s Board of Directors announced
As of December 31, 2020, the remaining authorized capacity under the Company’s $1.5 billion share repurchase program was $607.9 million.
costs within its consolidated statements of income.
as of the reporting date. The iswas acquired in a going-private transaction (as defined in the CVR Agreement) within two years of the commencement of the tender offer. The initial fair value of the CVR was $7.3 million, which was recorded as a liability in the fourth quarter of 2017 with a corresponding decrease to shareholders’ equity. In determining the initial fair value of the CVR, the Company used a lattice model, which included inputs such as the underlying stock price, strike price, time to expiration, and dividend yield. Subsequent changes in the fair value of the CVR liability, using a similar valuation approach as the initial fair value determination, arewere recognized within the Company'sCompany’s consolidated balance sheetsheets with corresponding gains or losses being recognized in non-operatingother expense (income), net within the Company'sCompany’s consolidated statements of income during each reporting period until the CVR expiresexpired in August 2019 or iswas terminated due to a going-private transaction. Astransaction, which was also incorporated in the valuation of December 31, 2017,the CVR; this going-private probability input was considered to be a Level 3 input in the fair value hierarchy and any increase or decrease in this input could have significantly impacted the fair value of the CVR was $6.9 million.approximate 9.9 million common shares effectively repurchased throughCVR expired without value on August 21, 2019, the Forward Transactions are treated as retired shares for basic and diluted EPS purposes although they remain legally outstanding. two-year anniversary of August 21, 2017, the date the Company commenced the related modified Dutch auction tender offer.
The Company reflectsstatement of income due to the aggregate purchase pricechange in the fair value of its common shares repurchased as a reduction to (increase in) shareholders’ (deficit) equity. The Company allocated the purchaseCVR, which was primarily driven by an increase in the market price of the repurchased shares to (accumulated deficit) retained earnings,Company’s common shares, and additional paid-in capital, withpartially offset by a decrease in the exceptionprobability of treasury shares, which are recorded separately ona going-private transaction as a result of the Company’s consolidated balance sheets.
shortening term of the CVR before it expired pursuant to its terms.
For During the years ended December
Transaction
Loss
|
| Changes in Accumulated Other Comprehensive Income (Loss) by Component |
| |||||||||||||
|
| Foreign Currency Translation Adjustments |
|
| Unrealized Gain (Loss) on Derivatives |
|
| Other |
|
| Total |
| ||||
| (In millions) |
| ||||||||||||||
Balance as of December 31, 2014 |
| $ | (96.4 | ) |
| $ | 18.0 |
|
| $ | 0.2 |
|
| $ | (78.2 | ) |
Other comprehensive income (loss) before reclassifications, net of tax |
|
| (86.6 | ) |
|
| 15.4 |
|
|
| (1.7 | ) |
|
| (72.9 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) to income, net of tax(1) |
|
| — |
|
|
| (16.0 | ) |
|
| 1.6 |
|
|
| (14.4 | ) |
Total other comprehensive income (loss), net of reclassifications |
|
| (86.6 | ) |
|
| (0.6 | ) |
|
| (0.1 | ) |
|
| (87.3 | ) |
Balance as of December 31, 2015 |
| $ | (183.0 | ) |
| $ | 17.4 |
|
| $ | 0.1 |
|
| $ | (165.5 | ) |
Other comprehensive income (loss) before reclassifications, net of tax |
|
| (32.5 | ) |
|
| 8.4 |
|
|
| — |
|
|
| (24.1 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) to income, net of tax(1) |
|
| — |
|
|
| (15.4 | ) |
|
| (0.1 | ) |
|
| (15.5 | ) |
Total other comprehensive income (loss), net of reclassifications |
|
| (32.5 | ) |
|
| (7.0 | ) |
|
| (0.1 | ) |
|
| (39.6 | ) |
Balance as of December 31, 2016 |
| $ | (215.5 | ) |
| $ | 10.4 |
|
| $ | — |
|
| $ | (205.1 | ) |
Other comprehensive income (loss) before reclassifications, net of tax |
|
| 44.9 |
|
|
| (7.9 | ) |
|
| — |
|
|
| 37.0 |
|
Amounts reclassified from accumulated other comprehensive income (loss) to income, net of tax(1) |
|
| — |
|
|
| 2.7 |
|
|
| — |
|
|
| 2.7 |
|
Total other comprehensive income (loss), net of reclassifications |
|
| 44.9 |
|
|
| (5.2 | ) |
|
| — |
|
|
| 39.7 |
|
Balance as of December 31, 2017 |
| $ | (170.6 | ) |
| $ | 5.2 |
|
| $ | — |
|
| $ | (165.4 | ) |
Changes in Accumulated Other Comprehensive Loss by Component | |||||||||||||||
Foreign Currency Translation Adjustments | Unrealized Gain (Loss) on Derivatives | Total | |||||||||||||
(in millions) | |||||||||||||||
Balance as of December 31, 2017 | $ | (170.6 | ) | $ | 5.2 | $ | (165.4 | ) | |||||||
Other comprehensive loss before reclassifications, net of tax | (41.0 | ) | (3.6 | ) | (44.6 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive loss to income, net of tax(1) | — | 0.2 | 0.2 | ||||||||||||
Total other comprehensive loss, net of reclassifications | (41.0 | ) | (3.4 | ) | (44.4 | ) | |||||||||
Balance as of December 31, 2018 | (211.6 | ) | 1.8 | (209.8 | ) | ||||||||||
Other comprehensive loss before reclassifications, net of tax | — | (1.9 | ) | (1.9 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive loss to income, net of tax(1) | — | (0.8 | ) | (0.8 | ) | ||||||||||
Total other comprehensive loss, net of reclassifications | — | (2.7 | ) | (2.7 | ) | ||||||||||
Balance as of December 31, 2019 | (211.6 | ) | (0.9 | ) | (212.5 | ) | |||||||||
Other comprehensive income before reclassifications, net of tax | 33.2 | 1.7 | 34.9 | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss to income, net of tax(1) | — | (4.6 | ) | (4.6 | ) | ||||||||||
Total other comprehensive income (loss), net of reclassifications | 33.2 | (2.9 | ) | 30.3 | |||||||||||
Balance as of December 31, 2020 | $ | (178.4 | ) | $ | (3.8 | ) | $ | (182.2 | ) | ||||||
(1) | See Note 2, Basis of Presentation Derivative Instruments and Hedging Activities |
Other comprehensive income (loss) before reclassifications was net of tax expense of $5.2$2.0 million and tax benefits of $0.3$0.6 million for foreign currency translation adjustments and unrealized gain (loss) on derivatives, respectively, for the year ended December 31, 2016.2020. Amounts reclassified from accumulated other comprehensive income (loss)loss to income was net of tax expense of $0.2 million for unrealized gain (loss) on derivatives for the year ended December 31, 2020.
2019.
During the years ended December 31, 2017, 2016, and 2015, the Company granted
During The Company did not grant any SARs with performance conditions during the years ended December 31, 2017, 2016,2020, 2019 and 2015, the Company granted2018.
During The Company did not grant any SARs with service conditions during the yearyears ended December 31, 2017,2020, 2019, and 2018.
employees, which generally vest annually over a one-year and three-year period, respectively.
2017,2020, the total unrecognized compensation cost related to non-vested service condition stock awards was $29.2$55.0 million and the related weighted-average period over which it is expected to be recognized is approximately 1.41.3 years. As of December 31, 2017,2020, the total unrecognized compensation cost related to non-vested performance condition awards was $15.1$18.3 million and the related weighted-average period over which it is expected to be recognized is approximately 1.71.8 years. As of December 31, 2017, the total unrecognized compensation cost related to non-vested market condition stock awards was less than $0.1 million and the related weighted-average period over which it is expected to be recognized is approximately 0.2 years.
|
| SARs |
| |||||||||
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Expected volatility |
|
| 49.2 | % |
|
| 49.6 | % |
|
| 48.7 | % |
Dividends yield |
|
| 0.0 | % |
|
| 0.1 | % |
|
| 1.6 | % |
Expected term |
| 6.0 years |
|
| 6.0 years |
|
| 5.8 years |
| |||
Risk-free interest rate |
|
| 2.2 | % |
|
| 1.2 | % |
|
| 1.6 | % |
The following table summarizes the weighted average assumptions used in the calculation of the fair value for performance condition awards granted during the years ended December 31, 2017, 2016, and 2015:
|
| SARs |
| |||||||||
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Expected volatility |
|
| 49.6 | % |
|
| 49.6 | % |
|
| 48.8 | % |
Dividends yield |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 1.6 | % |
Expected term |
| 6.1 years |
|
| 6.0 years |
|
| 5.8 years |
| |||
Risk-free interest rate |
|
| 2.2 | % |
|
| 1.2 | % |
|
| 1.6 | % |
The following tables summarize the activity under allCompany’s share-based compensation plans which includes all stock awards, for the year ended December 31, 2017:
Stock Options & SARs |
| Awards |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Term |
| Aggregate Intrinsic Value(1) |
| |||
|
| (In thousands) |
|
|
|
|
|
|
|
| (In millions) |
| ||
Outstanding as of December 31, 2016(2) (3) |
|
| 11,998 |
|
| $ | 41.52 |
|
| 6.0 years |
| $ | 148.7 |
|
Granted |
|
| 1,362 |
|
| $ | 57.33 |
|
|
|
|
|
|
|
Exercised |
|
| (3,394 | ) |
| $ | 31.86 |
|
|
|
|
|
|
|
Forfeited |
|
| (369 | ) |
| $ | 53.59 |
|
|
|
|
|
|
|
Outstanding as of December 31, 2017(2) (3) |
|
| 9,597 |
|
| $ | 46.72 |
|
| 6.2 years |
| $ | 212.0 |
|
Exercisable as of December 31, 2017(4) |
|
| 5,438 |
|
| $ | 46.30 |
|
| 4.8 years |
| $ | 126.9 |
|
Number of Awards | Weighted- Average Exercise Price Per Award | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value(1) | |||||||||||||||||
(in thousands) | (in millions) | |||||||||||||||||||
Outstanding as of December 31, 2019(2)(3) | 7,001 | $ | 27.85 | 5.4 years | $ | 138.7 | ||||||||||||||
Grante d | — | $ | — | |||||||||||||||||
Exercised(4) | (3,257 | ) | $ | 28.56 | ||||||||||||||||
Forfeited | (7 | ) | $ | 29.03 | ||||||||||||||||
Outstanding as of December 31, 2020(2)(3) | 3,737 | $ | 27.23 | 4.6 years | $ | 77.8 | ||||||||||||||
Exercisable as of December 31, 2020(2)(5) | 3,737 | $ | 27.23 | 4.6 years | $ | 77.8 | ||||||||||||||
Vested and expected to vest as of December 31, 2020 | 3,737 | $ | 27.23 | 4.6 years | $ | 77.8 | ||||||||||||||
(1) | The intrinsic value is the amount by which the current market value of the underlying stock exceeds the exercise price of the stock |
(2) | Includes |
(3) | Includes |
(4) | Includes |
The weighted-average grant date fair value of service condition SARs granted during the years ended December 31, 2017, 2016, and 2015 was $28.64, $29.33, and $12.57, respectively. The weighted-average grant date fair value of SARs with performance conditions granted during the years ended December 31, 2017, 2016, and 2015 was $28.32, $29.69, and $13.65, respectively.
(5) | Includes less than 0.1 million market condition and 1.1 million performance condition SARs. |
2018 was 0, 0, and $7.8 million.
Incentive Plan and Independent Directors Stock Units |
| Shares |
|
| Weighted Average Grant Date Fair Value |
| ||
|
| (In thousands) |
|
|
|
|
| |
Outstanding and nonvested as of December 31, 2016 |
|
| 26 |
|
| $ | 62.35 |
|
Granted(1) |
|
| 162 |
|
| $ | 68.74 |
|
Vested |
|
| (25 | ) |
| $ | 62.40 |
|
Forfeited |
| — |
|
|
|
|
| |
Outstanding and nonvested as of December 31, 2017 |
|
| 163 |
|
| $ | 68.69 |
|
Number of Shares | Weighted- Average Grant Date Fair Value Per Share | |||||||||
(in thousands) | ||||||||||
Outstanding and nonvested as of December 31, 2019(1) | 1,833 | $ | 49.49 | |||||||
Granted(2) | 1,995 | $ | 39.67 | |||||||
Vested (3) | (566 | ) | $ | 46.53 | ||||||
Forfeited (4) | (194 | ) | $ | 43.79 | ||||||
Outstanding and nonvested as of December 31, 2020(1) | 3,068 | $ | 44.01 | |||||||
Expected to vest as of December 31, 2020( 5 ) | 2,846 | $ | 43.66 | |||||||
(1) |
Includes 712,596 and 475,430 performance based stock unit awards as of December 31, 2020 and 2019, respectively, which represents the maximum amount that can vest. |
(2) | Includes 504,908 performance-based stock unit awards. |
(3) | Includes228,996 performance-based stock unit awards. |
(4) | Includes 38,746 performance-based stock unit awards. |
(5) | Includes 561,280 performance-based stock unit awards. |
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (In millions) |
| |||||||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Primary Reporting Segment |
| $ | 3,541.8 |
|
| $ | 3,619.6 |
|
| $ | 3,622.8 |
|
China |
|
| 885.9 |
|
|
| 868.8 |
|
|
| 846.2 |
|
Total Net Sales |
| $ | 4,427.7 |
|
| $ | 4,488.4 |
|
| $ | 4,469.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution Margin(1): |
|
|
|
|
|
|
|
|
|
|
|
|
Primary Reporting Segment |
| $ | 1,534.2 |
|
| $ | 1,571.9 |
|
| $ | 1,598.8 |
|
China(2) |
|
| 790.7 |
|
|
| 789.3 |
|
|
| 762.8 |
|
Total Contribution Margin |
| $ | 2,324.9 |
|
| $ | 2,361.2 |
|
| $ | 2,361.6 |
|
Selling, general and administrative expense(2) |
|
| 1,758.6 |
|
|
| 1,966.9 |
|
|
| 1,784.5 |
|
Other operating income |
|
| (50.8 | ) |
|
| (63.8 | ) |
|
| (6.5 | ) |
Interest expense |
|
| 160.8 |
|
|
| 99.3 |
|
|
| 100.5 |
|
Interest income |
|
| 14.5 |
|
|
| 5.9 |
|
|
| 5.6 |
|
Other expense, net |
|
| (0.4 | ) |
|
| — |
|
|
| 2.3 |
|
Income before income taxes |
|
| 471.2 |
|
|
| 364.7 |
|
|
| 486.4 |
|
Income taxes |
|
| 257.3 |
|
|
| 104.7 |
|
|
| 147.3 |
|
Net Income |
| $ | 213.9 |
|
| $ | 260.0 |
|
| $ | 339.1 |
|
| Year Ended December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (In millions) |
| |||||||||
Net sales by product line: |
|
|
|
|
|
|
|
|
|
|
|
|
Weight Management |
| $ | 2,842.5 |
|
| $ | 2,864.5 |
|
| $ | 2,862.8 |
|
Targeted Nutrition |
|
| 1,082.8 |
|
|
| 1,062.8 |
|
|
| 1,015.4 |
|
Energy, Sports & Fitness |
|
| 263.8 |
|
|
| 268.4 |
|
|
| 250.9 |
|
Outer Nutrition |
|
| 93.9 |
|
|
| 110.4 |
|
|
| 133.0 |
|
Literature, Promotional and Other(3) |
|
| 144.7 |
|
|
| 182.3 |
|
|
| 206.9 |
|
Total Net Sales |
| $ | 4,427.7 |
|
| $ | 4,488.4 |
|
| $ | 4,469.0 |
|
Net sales by geographic area: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 818.3 |
|
| $ | 935.0 |
|
| $ | 860.0 |
|
Mexico |
|
| 442.7 |
|
|
| 446.6 |
|
|
| 479.9 |
|
China |
|
| 885.9 |
|
|
| 868.8 |
|
|
| 846.2 |
|
Others |
|
| 2,280.8 |
|
|
| 2,238.0 |
|
|
| 2,282.9 |
|
Total Net Sales |
| $ | 4,427.7 |
|
| $ | 4,488.4 |
|
| $ | 4,469.0 |
|
Year Ended December 31, | |||||||||||||||
2020 | 2019 | 2018 | |||||||||||||
(in millions) | |||||||||||||||
Net sales: | |||||||||||||||
Primary Reporting Segment | $ | 4,732.2 | $ | 4,125.1 | $ | 3,884.2 | |||||||||
China | 809.6 | 752.0 | 1,007.6 | ||||||||||||
Total net sales | $ | 5,541.8 | $ | 4,877.1 | $ | 4,891.8 | |||||||||
Contribution margin(1): | |||||||||||||||
Primary Reporting Segment | $ | 1,983.6 | $ | 1,793.6 | $ | 1,693.5 | |||||||||
China(2) | 717.5 | 677.3 | 915.0 | ||||||||||||
Total contribution margin | $ | 2,701.1 | $ | 2,470.9 | $ | 2,608.5 | |||||||||
Selling, general, and administrative expenses(2) | 2,075.0 | 1,940.3 | 1,955.2 | ||||||||||||
Other operating income | (14.5 | ) | (37.5 | ) | (29.8 | ) | |||||||||
Interest expense | 133.0 | 153.0 | 181.0 | ||||||||||||
Interest income | 8.8 | 20.6 | 19.4 | ||||||||||||
Other expense (income), net | — | (15.7 | ) | 57.3 | |||||||||||
Income before income taxes | 516.4 | 451.4 | 464.2 | ||||||||||||
Income taxes | 143.8 | 140.4 | 167.6 | ||||||||||||
Net income | $ | 372.6 | $ | 311.0 | $ | 296.6 | |||||||||
Net sales by product line: | |||||||||||||||
Weight Management | $ | 3,312.8 | $ | 3,012.5 | $ | 3,105.8 | |||||||||
Targeted Nutrition | 1,527.4 | 1,278.5 | 1,243.5 | ||||||||||||
Energy, Sports, and Fitness | 437.4 | 352.0 | 308.4 | ||||||||||||
Outer Nutrition | 111.3 | 97.3 | 91.9 | ||||||||||||
Literature, Promotional, and Other(3) | 152.9 | 136.8 | 142.2 | ||||||||||||
Total net sales | $ | 5,541.8 | $ | 4,877.1 | $ | 4,891.8 | |||||||||
Net sales by geographic area: | |||||||||||||||
United States | $ | 1,334.5 | $ | 1,002.6 | $ | 925.9 | |||||||||
China | 809.6 | 752.0 | 1,007.6 | ||||||||||||
Mexico | 436.9 | 473.6 | 467.9 | ||||||||||||
Others | 2,960.8 | 2,648.9 | 2,490.4 | ||||||||||||
Total net sales | $ | 5,541.8 | $ | 4,877.1 | $ | 4,891.8 | |||||||||
(1) | Contribution margin consists of net sales less cost of sales and |
(2) | Service fees to China independent service providers totaling |
(3) | Product |
|
| December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (In millions) |
| |||||||||
Property, Plant and Equipment, net: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 289.8 |
|
| $ | 290.7 |
|
| $ | 264.2 |
|
Foreign |
|
| 87.7 |
|
|
| 87.3 |
|
|
| 75.0 |
|
Total Property, Plant and Equipment, net |
| $ | 377.5 |
|
| $ | 378.0 |
|
| $ | 339.2 |
|
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 103.6 |
|
| $ | 218.7 |
|
| $ | 188.5 |
|
Foreign |
|
| 70.9 |
|
|
| 62.5 |
|
|
| 63.9 |
|
Total Deferred Tax Assets |
| $ | 174.5 |
|
| $ | 281.2 |
|
| $ | 252.4 |
|
The majority of the Company’s foreign subsidiaries designate their local currencies as their functional currency. As of December 31, 2017 and 2016, the total amount of cash held by foreign subsidiaries reported in the Company’s consolidated balance sheets was $1,133.5 million and $316.2 million, respectively, of which $633.3 million and $28.2 million, respectively, was maintained or invested in U.S. dollars. As of December 31, 2017 and 2016, the total amount of cash and cash equivalents held by the Company’s parent and its U.S. entities, inclusive of U.S. territories, was $145.3 million and $527.8 million, respectively.
December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
(in millions) | ||||||||||||
Property, plant, and equipment, net: | ||||||||||||
United States | $ | 303.2 | $ | 292.4 | $ | 285.2 | ||||||
Foreign | 87.0 | 79.1 | 74.8 | |||||||||
Total property, plant, and equipment, net | $ | 390.2 | $ | 371.5 | $ | 360.0 | ||||||
Deferred tax assets: | ||||||||||||
United States | $ | 123.8 | $ | 114.5 | $ | 90.7 | ||||||
Foreign | 76.6 | 68.3 | 74.9 | |||||||||
Total deferred tax assets | $ | 200.4 | $ | 182.8 | $ | 165.6 | ||||||
The Company has elected to record changes in the fair value of amounts excluded from the assessment of effectiveness currently in
As of December 31, 20172020 and December 31, 2016,2019, the majority of the Company’s outstanding foreign currency forward contracts had maturity dates of less than twelve months with the majority of freestanding derivatives expiring within one month asmonth.
The table below describes all foreign currency forward contracts that were outstanding as of December 31, 20172020 and December 31, 2016:
Foreign Currency |
| Average Contract Rate |
|
| Original Notional Amount |
|
| Fair Value Gain (Loss) |
| |||
|
|
|
|
|
| (In millions) |
|
| (In millions) |
| ||
As of December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Buy Argentine peso sell Euro |
|
| 21.40 |
|
| $ | 0.5 |
|
| $ | — |
|
Buy Australian dollar sell Euro |
|
| 1.55 |
|
|
| 0.9 |
|
|
| — |
|
Buy Canadian dollar sell Euro |
|
| 1.52 |
|
|
| 0.5 |
|
|
| — |
|
Buy Chilean peso sell Euro |
|
| 749.55 |
|
|
| 0.6 |
|
|
| — |
|
Buy Chinese yuan sell Euro |
|
| 8.03 |
|
|
| 25.9 |
|
|
| 0.4 |
|
Buy Euro sell Argentine peso |
|
| 21.46 |
|
|
| 0.5 |
|
|
| — |
|
Buy Euro sell Australian dollar |
|
| 1.56 |
|
|
| 4.8 |
|
|
| (0.1 | ) |
Buy Euro sell Canadian dollar |
|
| 1.52 |
|
|
| 0.5 |
|
|
| — |
|
Buy Euro sell Chilean peso |
|
| 749.35 |
|
|
| 1.1 |
|
|
| — |
|
Buy Euro sell Chinese yuan |
|
| 7.84 |
|
|
| 26.5 |
|
|
| 0.2 |
|
Buy Euro sell Ghana cedi |
|
| 5.61 |
|
|
| 3.0 |
|
|
| (0.1 | ) |
Buy Euro sell Hong Kong dollar |
|
| 9.26 |
|
|
| 6.8 |
|
|
| 0.1 |
|
Buy Euro sell Indonesian rupiah |
|
| 16,113.59 |
|
|
| 11.5 |
|
|
| 0.1 |
|
Buy Euro sell Japanese yen |
|
| 133.88 |
|
|
| 0.4 |
|
|
| — |
|
Buy Euro sell Kazakhstani tenge |
|
| 401.40 |
|
|
| 1.7 |
|
|
| — |
|
Buy Euro sell Mexican peso |
|
| 22.65 |
|
|
| 59.1 |
|
|
| 3.6 |
|
Buy Euro sell Malaysian ringgit |
|
| 4.84 |
|
|
| 1.6 |
|
|
| — |
|
Buy Euro sell Peruvian nuevo sol |
|
| 3.85 |
|
|
| 4.9 |
|
|
| — |
|
Buy Euro sell Philippine peso |
|
| 60.03 |
|
|
| 5.3 |
|
|
| — |
|
Buy Euro sell Russian ruble |
|
| 70.38 |
|
|
| 10.8 |
|
|
| (0.1 | ) |
Buy Euro sell Thai baht |
|
| 38.33 |
|
|
| 1.3 |
|
|
| — |
|
Buy Euro sell Taiwan dollar |
|
| 35.59 |
|
|
| 0.6 |
|
|
| — |
|
Buy Euro sell U.S. dollar |
|
| 1.18 |
|
|
| 59.1 |
|
|
| 0.9 |
|
Buy Euro sell South African rand |
|
| 16.37 |
|
|
| 3.8 |
|
|
| (0.3 | ) |
Buy British pound sell Euro |
|
| 0.88 |
|
|
| 3.4 |
|
|
| (0.1 | ) |
Buy British pound sell U.S. dollar |
|
| 1.35 |
|
|
| 2.8 |
|
|
| — |
|
Buy Hong Kong dollar sell Euro |
|
| 9.31 |
|
|
| 3.0 |
|
|
| — |
|
Buy Indonesian rupiah sell Euro |
|
| 16,164.33 |
|
|
| 4.8 |
|
|
| — |
|
Buy Indonesian rupiah sell U.S. dollar |
|
| 13,676.00 |
|
|
| 6.2 |
|
|
| — |
|
Buy Korean won sell U.S. dollar |
|
| 1,077.18 |
|
|
| 5.4 |
|
|
| 0.1 |
|
Buy Kazakhstani tenge sell U.S. dollar |
|
| 338.75 |
|
|
| 0.9 |
|
|
| — |
|
Buy Mexican peso sell Euro |
|
| 22.97 |
|
|
| 7.1 |
|
|
| (0.2 | ) |
Buy Malaysian ringgit sell Euro |
|
| 4.90 |
|
|
| 0.5 |
|
|
| — |
|
Buy Norwegian krone sell U.S. dollar |
|
| 8.26 |
|
|
| 1.2 |
|
|
| — |
|
Buy Peruvian nuevo sol sell Euro |
|
| 3.85 |
|
|
| 2.3 |
|
|
| — |
|
Buy Russian ruble sell Euro |
|
| 70.47 |
|
|
| 4.4 |
|
|
| 0.1 |
|
Buy Swedish krona sell U.S. dollar |
|
| 8.37 |
|
|
| 1.9 |
|
|
| 0.1 |
|
Buy Thai baht sell Euro |
|
| 38.69 |
|
|
| 2.2 |
|
|
| — |
|
Buy Taiwan dollar sell U.S. dollar |
|
| 29.78 |
|
|
| 5.9 |
|
|
| 0.1 |
|
Buy U.S. dollar sell Colombian peso |
|
| 2,996.00 |
|
|
| 1.0 |
|
|
| — |
|
Buy U.S. dollar sell Euro |
|
| 1.15 |
|
|
| 141.1 |
|
|
| (5.3 | ) |
Buy U.S. dollar sell British pound |
|
| 1.34 |
|
|
| 6.8 |
|
|
| (0.1 | ) |
Buy U.S. dollar sell South African rand |
|
| 13.93 |
|
|
| 1.9 |
|
|
| (0.2 | ) |
Buy South African rand sell Euro |
|
| 15.18 |
|
|
| 0.9 |
|
|
| — |
|
Total forward contracts |
|
|
|
|
| $ | 435.4 |
|
| $ | (0.8 | ) |
Foreign Currency |
| Average Contract Rate |
|
| Original Notional Amount |
|
| Fair Value Gain (Loss) |
| |||
|
|
|
|
|
| (In millions) |
|
| (In millions) |
| ||
As of December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Buy Chinese yuan sell Euro |
|
| 7.51 |
|
| $ | 61.8 |
|
| $ | 1.0 |
|
Buy Colombian peso sell U.S. dollar |
|
| 3,111.41 |
|
|
| 2.6 |
|
|
| 0.1 |
|
Buy Euro sell Australian dollar |
|
| 1.46 |
|
|
| 1.7 |
|
|
| — |
|
Buy Euro sell Chilean peso |
|
| 723.80 |
|
|
| 1.0 |
|
|
| — |
|
Buy Euro sell Hong Kong dollar |
|
| 8.11 |
|
|
| 13.4 |
|
|
| 0.1 |
|
Buy Euro sell Indonesian rupiah |
|
| 14,394.40 |
|
|
| 9.4 |
|
|
| (0.1 | ) |
Buy Euro sell Japanese yen |
|
| 122.54 |
|
|
| 0.6 |
|
|
| — |
|
Buy Euro sell Mexican peso |
|
| 22.01 |
|
|
| 52.2 |
|
|
| 1.2 |
|
Buy Euro sell Peruvian nuevo sol |
|
| 3.61 |
|
|
| 3.9 |
|
|
| (0.1 | ) |
Buy Euro sell Philippine peso |
|
| 53.11 |
|
|
| 5.4 |
|
|
| (0.1 | ) |
Buy Euro sell Russian ruble |
|
| 68.37 |
|
|
| 5.6 |
|
|
| (0.3 | ) |
Buy Euro sell U.S. dollar |
|
| 1.08 |
|
|
| 74.5 |
|
|
| (1.5 | ) |
Buy Euro sell South African rand |
|
| 15.02 |
|
|
| 3.4 |
|
|
| (0.1 | ) |
Buy British pound sell Euro |
|
| 0.84 |
|
|
| 3.1 |
|
|
| — |
|
Buy Hong Kong dollar sell Euro |
|
| 8.11 |
|
|
| 11.9 |
|
|
| (0.1 | ) |
Buy Indonesian rupiah sell Euro |
|
| 14,222.02 |
|
|
| 3.9 |
|
|
| — |
|
Buy Korean won sell U.S. dollar |
|
| 1,167.30 |
|
|
| 5.0 |
|
|
| (0.2 | ) |
Buy Kazakhstani tenge sell U.S. dollar |
|
| 342.00 |
|
|
| 0.9 |
|
|
| — |
|
Buy Mexican peso sell Euro |
|
| 21.30 |
|
|
| 11.9 |
|
|
| (0.3 | ) |
Buy Norwegian krone sell U.S. dollar |
|
| 8.70 |
|
|
| 1.1 |
|
|
| — |
|
Buy Peruvian nuevo sol sell Euro |
|
| 3.57 |
|
|
| 1.0 |
|
|
| — |
|
Buy Philippine peso sell Euro |
|
| 52.42 |
|
|
| 1.7 |
|
|
| — |
|
Buy Russian ruble sell Euro |
|
| 67.50 |
|
|
| 3.2 |
|
|
| 0.1 |
|
Buy Swedish krona sell U.S. dollar |
|
| 9.17 |
|
|
| 0.8 |
|
|
| — |
|
Buy Taiwan dollar sell U.S. dollar |
|
| 32.08 |
|
|
| 17.1 |
|
|
| (0.1 | ) |
Buy U.S. dollar sell Colombian peso |
|
| 3,092.61 |
|
|
| 5.6 |
|
|
| (0.1 | ) |
Buy U.S. dollar sell Euro |
|
| 1.06 |
|
|
| 140.4 |
|
|
| 4.5 |
|
Buy U.S. dollar sell Japanese yen |
|
| 117.39 |
|
|
| 0.5 |
|
|
| — |
|
Buy U.S. dollar sell South African rand |
|
| 14.14 |
|
|
| 2.1 |
|
|
| (0.1 | ) |
Buy South African rand sell Euro |
|
| 14.75 |
|
|
| 0.4 |
|
|
| — |
|
Buy South African rand sell U.S. dollar |
|
| 14.24 |
|
|
| 1.1 |
|
|
| — |
|
Total forward contracts |
|
|
|
|
| $ | 447.2 |
|
| $ | 3.9 |
|
Weighted- Average Contract Rate | Notional Amount | Fair Value Gain (Loss) | ||||||||||||||
(in millions, except weighted-average contract rate) | ||||||||||||||||
As of December 31, 2020 | ||||||||||||||||
Buy British pound sell Euro | 0.92 | $ | 3.4 | $ | 0.1 | |||||||||||
Buy British pound sell U.S. dollar | 1.34 | 1.5 | — | |||||||||||||
Buy Chinese yuan sell Euro | 8.14 | 52.1 | (0.1 | ) | ||||||||||||
Buy Chinese yuan sell U.S. dollar | 7.13 | 99.3 | 8.5 | |||||||||||||
Buy Colombian peso sell U.S. dollar | 3,422.09 | 1.1 | — | |||||||||||||
Buy Danish krone sell U.S. dollar | 6.10 | 1.0 | — | |||||||||||||
Buy Euro sell Australian dollar | 1.61 | 1.4 | — | |||||||||||||
Buy Euro sell British pound | 0.91 | 2.6 | — | |||||||||||||
Buy Euro sell Canadian dollar | 1.56 | 1.1 | — | |||||||||||||
Buy Euro sell Chilean peso | 896.37 | 2.6 | (0.1 | ) | ||||||||||||
Buy Euro sell Hong Kong dollar | 9.49 | 4.4 | — | |||||||||||||
Buy Euro sell Indian rupee | 90.29 | 4.9 | (0.1 | ) | ||||||||||||
Buy Euro sell Indonesian rupiah | 17,189.96 | 4.1 | — | |||||||||||||
Buy Euro sell Israeli shekel | 3.98 | 0.9 | — | |||||||||||||
Buy Euro sell Kazakhstani tenge | 520.25 | 3.1 | — | |||||||||||||
Buy Euro sell Malaysian ringgit | 4.98 | 1.2 | — | |||||||||||||
Buy Euro sell Mexican peso | 26.22 | 55.7 | (3.4 | ) | ||||||||||||
Buy Euro sell Peruvian nuevo sol | 4.41 | 1.6 | — | |||||||||||||
Buy Euro sell Philippine peso | 59.13 | 1.2 | — | |||||||||||||
Buy Euro sell Russian ruble | 92.13 | 7.7 | (0.1 | ) | ||||||||||||
Buy Euro sell South African rand | 18.00 | 5.4 | — | |||||||||||||
Buy Euro sell Taiwan dollar | 34.30 | 1.2 | — | |||||||||||||
Buy Euro sell Turkish lira | 9.32 | 2.9 | (0.1 | ) |
Weighted- Average Contract Rate | Notional Amount | Fair Value Gain (Loss) | |||||||||||||
(in millions, except weighted-average contract rate) | |||||||||||||||
Buy Euro sell Vietnamese dong | 27,872.81 | 17.5 | 0.2 | ||||||||||||
Buy Indonesian rupiah sell U.S. dollar | 14,115.17 | 7.1 | 0.1 | ||||||||||||
Buy Kazakhstani tenge sell Euro | 517.65 | 2.4 | — | ||||||||||||
Buy Korean won sell U.S. dollar | 1,114.85 | 10.0 | 0.2 | ||||||||||||
Buy Mexican peso sell U.S. dollar | 19.97 | 35.1 | — | ||||||||||||
Buy Norwegian krone sell U.S. dollar | 8.66 | 2.2 | — | ||||||||||||
Buy Russian ruble sell Euro | 90.11 | 1.2 | — | ||||||||||||
Buy Swedish krona sell U.S. dollar | 8.25 | 2.7 | — | ||||||||||||
Buy Taiwan dollar sell U.S. dollar | 27.67 | 15.2 | — | ||||||||||||
Buy U.S. dollar sell Australian dollar | 0.76 | 2.0 | — | ||||||||||||
Buy U.S. dollar sell Chinese yuan | 6.75 | 47.1 | (1.3 | ) | |||||||||||
Buy U.S. dollar sell Colombian peso | 3,525.72 | 4.2 | (0.1 | ) | |||||||||||
Buy U.S. dollar sell Euro | 1.20 | 24.9 | (0.4 | ) | |||||||||||
Buy U.S. dollar sell Korean won | 1,107.10 | 16.3 | (0.3 | ) | |||||||||||
Buy U.S. dollar sell Mexican peso | 21.94 | 11.3 | (0.6 | ) | |||||||||||
Buy U.S. dollar sell Philippine peso | 48.51 | 8.2 | (0.1 | ) | |||||||||||
Buy U.S. dollar sell Thai baht | 31.08 | 3.2 | (0.1 | ) | |||||||||||
Total forward contracts | $ | 471.0 | $ | 2.3 | |||||||||||
Weighted- Average Contract Rate | Notional Amount | Fair Value Gain (Loss) | |||||||||||||
(in millions, except weighted-average contract rate) | |||||||||||||||
As of December 31, 2019 | |||||||||||||||
Buy British pound sell Euro | 0.86 | $ | 3.3 | $ | — | ||||||||||
Buy British pound sell U.S. dollar | 1.30 | 2.7 | 0.1 | ||||||||||||
Buy Chinese yuan sell Euro | 7.99 | 58.4 | 0.4 | ||||||||||||
Buy Chinese yuan sell U.S. dollar | 7.16 | 73.8 | 1.9 | ||||||||||||
Buy Colombian peso sell U.S. dollar | 3,323.67 | 1.7 | — | ||||||||||||
Buy Euro sell Australian dollar | 1.62 | 1.1 | — | ||||||||||||
Buy Euro sell British pound | 0.86 | 4.9 | (0.1 | ) | |||||||||||
Buy Euro sell Hong Kong dollar | 8.70 | 4.1 | — | ||||||||||||
Buy Euro sell Indonesian rupiah | 15,632.92 | 13.0 | (0.1 | ) | |||||||||||
Buy Euro sell Korean won | 1,297.40 | 1.7 | — | ||||||||||||
Buy Euro sell Malaysian ringgit | 4.62 | 2.9 | — | ||||||||||||
Buy Euro sell Mexican peso | 22.41 | 63.3 | (1.8 | ) | |||||||||||
Buy Euro sell Peruvian nuevo sol | 3.73 | 1.1 | — | ||||||||||||
Buy Euro sell Philippine peso | 56.66 | 12.0 | 0.1 | ||||||||||||
Buy Euro sell Russian ruble | 70.47 | 1.7 | — | ||||||||||||
Buy Euro sell South African rand | 15.95 | 2.7 | — | ||||||||||||
Buy Euro sell Taiwan dollar | 33.66 | 3.8 | — | ||||||||||||
Buy Euro sell Thai baht | 33.66 | 2.8 | — | ||||||||||||
Buy Euro sell U.S. dollar | 1.12 | 61.5 | 0.4 | ||||||||||||
Buy Euro sell Vietnamese dong | 26,052.72 | 31.7 | (0.1 | ) | |||||||||||
Buy Indonesian rupiah sell U.S. dollar | 14,080.00 | 7.2 | 0.1 | ||||||||||||
Buy Norwegian krone sell U.S. dollar | 8.96 | 1.1 | — | ||||||||||||
Buy Swedish krona sell U.S. dollar | 9.36 | 0.6 | — | ||||||||||||
Buy Taiwan dollar sell U.S. dollar | 29.89 | 4.1 | — | ||||||||||||
Buy U.S. dollar sell Colombian peso | 3,304.37 | 1.9 | — | ||||||||||||
Buy U.S. dollar sell Euro | 1.12 | 134.9 | (0.4 | ) | |||||||||||
Buy U.S. dollar sell Mexican peso | 22.54 | 3.7 | (0.3 | ) | |||||||||||
Total forward contracts | $ | 501.7 | $ | 0.2 | |||||||||||
Instrument
|
| Amount of Gain (Loss) Recognized in Other Comprehensive Loss For the Year Ended |
| |||||||||
|
| December 31, 2017 |
|
| December 31, 2016 |
|
| December 31, 2015 |
| |||
|
| (In millions) |
| |||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges |
| $ | (7.9 | ) |
| $ | 8.1 |
|
| $ | 14.8 |
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) Year Ended December 31, | |||||||||||||||
2020 | 2019 | 2018 | |||||||||||||
(in millions) | |||||||||||||||
Derivatives designated as hedging instruments: | |||||||||||||||
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges | $ | 2.3 | $ | (1.9 | ) | $ | (3.6 | ) | |||||||
Interest rate swaps | (1.6 | ) | — | — |
2017,2020, the estimated amount of existing net gainslosses related to cash flow hedges recorded in accumulated other comprehensive loss that are expected to be reclassified into earnings over the next twelve months was $0.3$3.9 million.
Location and Amount of Gain (Loss) Recognized in Income on Cash Flow Hedging Relationships | |||||||||||||||
Year Ended December 31, | |||||||||||||||
2020 | |||||||||||||||
Cost of sales | Selling, general, and administrative expenses | Interest expense | |||||||||||||
(in millions) | |||||||||||||||
Total amounts presented in the consolidated statements of income | $ | 1,150.6 | $ | 2,075.0 | $ | 133.0 | |||||||||
Foreign exchange currency contracts relating to inventory hedges: | |||||||||||||||
Amount of gain reclassified from accumulated other comprehensive loss to income | 5.1 | — | — | ||||||||||||
Amount of loss excluded from assessment of effectiveness recognized in income(1) | (3.3 | ) | — | — | |||||||||||
Foreign exchange currency contracts relating to intercompany management fee hedges: | |||||||||||||||
Amount of loss reclassified from accumulated other comprehensive loss to income | — | (0.2 | ) | — | |||||||||||
Amount of gain excluded from assessment of effectiveness recognized in income | — | 0.1 | — | ||||||||||||
Interest rate swaps: | |||||||||||||||
Amount of loss reclassified from accumulated other comprehensive loss to income | — | — | (0.5 | ) | |||||||||||
Amount of gain excluded from assessment of effectiveness recognized in income | — | — | — |
Location and Amount of (Loss) Gain Recognized in Income on Cash Flow Hedging Relationships | |||||||||||||||
Year Ended December 31, | |||||||||||||||
2019 | |||||||||||||||
Cost of sales | Selling, general, and administrative expenses | Interest expense | |||||||||||||
(in millions) | |||||||||||||||
Total amounts presented in the consolidated statements of income | $ | 958.0 | $ | 1,940.3 | $ | 153.0 | |||||||||
Foreign exchange currency contracts relating to inventory hedges: | |||||||||||||||
Amount of loss reclassified from accumulated other comprehensive loss to income | (0.2 | ) | — | — | |||||||||||
Amount of loss excluded from assessment of effectiveness recognized in income(1) | (3.3 | ) | — | — | |||||||||||
Foreign exchange currency contracts relating to intercompany management fee hedges: | |||||||||||||||
Amount of gain reclassified from accumulated other comprehensive loss to income | — | 1.0 | — | ||||||||||||
Amount of gain excluded from assessment of effectiveness recognized in income | — | 0.2 | — | ||||||||||||
Interest rate swaps: | |||||||||||||||
Amount of gain reclassified from accumulated other comprehensive loss to income | — | — | — | ||||||||||||
Amount of gain excluded from assessment of effectiveness recognized in income | — | — | — |
Location and Amount of Gain (Loss) Recognized in Income on Cash Flow Hedging Relationships | |||||||||||||||
Year Ended December 31, | |||||||||||||||
2018 | |||||||||||||||
Cost of sales | Selling, general, and administrative expenses | Interest expense | |||||||||||||
(in millions) | |||||||||||||||
Total amounts presented in the consolidated statements of income | $ | 919.3 | $ | 1,955.2 | $ | 181.0 | |||||||||
Foreign exchange currency contracts relating to inventory hedges: | |||||||||||||||
Amount of gain reclassified from accumulated other comprehensive loss to income | 3.6 | — | — | ||||||||||||
Amount of loss excluded from assessment of effectiveness recognized in income(1) | — | (2.9 | ) | — | |||||||||||
Foreign exchange currency contracts relating to intercompany management fee hedges: | |||||||||||||||
Amount of loss reclassified from accumulated other comprehensive loss to income | — | (3.8 | ) | — | |||||||||||
Amount of gain excluded from assessment of effectiveness recognized in income | — | 0.8 | — |
Location and Amount of Gain (Loss) Recognized in Income on Cash Flow Hedging Relationships | |||||||||||||||
Year Ended December 31, | |||||||||||||||
2018 | |||||||||||||||
Cost of sales | Selling, general, and administrative expenses | Interest expense | |||||||||||||
(in millions) | |||||||||||||||
Interest rate swaps: | |||||||||||||||
Amount of gain reclassified from accumulated other comprehensive loss to income | — | — | — | ||||||||||||
Amount of gain excluded from assessment of effectiveness recognized in incom e | — | — | — |
(1) | As a result of adopting ASU 2017-12 during the first quarter of 2019, for the years ended December 31, 2020 and 2019, the Company recognized gains (losses) excluded from the assessment of effectiveness on foreign exchange currency contracts relating to inventory hedges in cost of sales within its consolidated statements of income. Prior to the adoption of ASU 2017-12, for the year ended December 31, 2018, the Company recognized gains (losses) excluded from the assessment of effectiveness on foreign exchange currency contracts relating to inventory hedges in selling, general, and administrative expenses within its consolidated statement of income. |
|
| Amount of Gain (Loss) Recognized in Income For the Year Ended |
|
|
| |||||||||
|
| December 31, 2017 |
|
| December 31, 2016 |
|
| December 31, 2015 |
|
| Location of Gain (Loss) Recognized in Income | |||
|
| (In millions) |
|
|
| |||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts relating to inventory hedges and intercompany management fee hedges(1) |
| $ | (0.1 | ) |
| $ | 0.2 |
|
| $ | 0.4 |
|
| Selling, general and administrative expenses |
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts |
| $ | (8.6 | ) |
| $ | (4.3 | ) |
| $ | (4.1 | ) |
| Selling, general and administrative expenses |
Amount of Gain (Loss) Recognized in Income | ||||||||||||||
Year Ended December 31, | ||||||||||||||
2020 | 2019 | 2018 | Location of Gain (Loss) Recognized in Income | |||||||||||
(in millions) | ||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||
Foreign exchange currency contracts | $ | 2.5 | $ | 1.0 | $ | (4.0 | ) | Selling, general, and administrative expenses |
|
|
The following table summarizes gains (losses) relating to derivative instruments reclassified from accumulated other comprehensive loss into income during the years ended December 31, 2017, 2016, and 2015:
|
| Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income |
|
| Location of Gain (Loss) Reclassified | |||||||||
|
| For the Year Ended |
|
| from Accumulated Other | |||||||||
|
| December 31, 2017 |
|
| December 31, 2016 |
|
| December 31, 2015 |
|
| Comprehensive Loss into Income (effective portion) | |||
|
| (In millions) |
|
|
| |||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts relating to inventory hedges |
| $ | (0.5 | ) |
| $ | 14.7 |
|
| $ | 15.8 |
|
| Cost of sales |
Foreign exchange currency contracts relating to intercompany management fee hedges |
| $ | (2.2 | ) |
| $ | 0.3 |
|
| $ | 0.2 |
|
| Selling, general and administrative expenses |
The Company reports its derivatives at fair value as either assets or liabilities within its consolidated balance sheets. See Note 13,sheets locationsheet locations as of December 31, 20172020 and 2016.
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Domestic |
| $ | (29.0 | ) |
| $ | (89.3 | ) |
| $ | 80.9 |
|
Foreign |
|
| 500.2 |
|
|
| 454.0 |
|
|
| 405.5 |
|
Total |
| $ | 471.2 |
|
| $ | 364.7 |
|
| $ | 486.4 |
|
Year Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
(in millions) | ||||||||||||
Domestic | $ | 152.5 | $ | 48.6 | $ | (2.0 | ) | |||||
Foreign | 363.9 | 402.8 | 466.2 | |||||||||
Total | $ | 516.4 | $ | 451.4 | $ | 464.2 | ||||||
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
| $ | 147.1 |
|
| $ | 127.9 |
|
| $ | 147.0 |
|
Federal |
|
| 10.6 |
|
|
| 12.4 |
|
|
| 35.4 |
|
State |
|
| 1.8 |
|
|
| 0.8 |
|
|
| 3.1 |
|
|
|
| 159.5 |
|
|
| 141.1 |
|
|
| 185.5 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
| (8.6 | ) |
|
| 12.5 |
|
|
| (13.2 | ) |
Federal |
|
| 106.4 |
|
|
| (47.2 | ) |
|
| (23.8 | ) |
State |
|
| — |
|
|
| (1.7 | ) |
|
| (1.2 | ) |
|
|
| 97.8 |
|
|
| (36.4 | ) |
|
| (38.2 | ) |
|
| $ | 257.3 |
|
| $ | 104.7 |
|
| $ | 147.3 |
|
Year Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
(in millions) | ||||||||||||
Current | ||||||||||||
Foreign | $ | 122.0 | $ | 100.6 | $ | 150.7 | ||||||
Federal | 13.7 | 22.1 | 24.9 | |||||||||
State | 6.1 | 2.3 | 0.1 | |||||||||
141.8 | 125.0 | 175.7 | ||||||||||
Deferred: | ||||||||||||
Foreign | (2.7 | ) | 12.8 | (13.7 | ) | |||||||
Federal | 3.9 | 1.3 | 8.0 | |||||||||
State | 0.8 | 1.3 | (2.4 | ) | ||||||||
2.0 | 15.4 | (8.1 | ) | |||||||||
$ | 143.8 | $ | 140.4 | $ | 167.6 | |||||||
|
| December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Accruals not currently deductible |
| $ | 78.5 |
|
| $ | 85.2 |
|
Tax loss and credit carryforwards of certain foreign subsidiaries |
|
| 137.6 |
|
|
| 115.1 |
|
Tax loss and domestic tax credit carryforwards |
|
| 191.4 |
|
|
| 102.6 |
|
Deferred compensation plan |
|
| 49.7 |
|
|
| 73.8 |
|
Accrued vacation |
|
| 4.4 |
|
|
| 6.2 |
|
Inventory reserve |
|
| 7.4 |
|
|
| 11.2 |
|
Other |
|
| 4.9 |
|
|
| 2.5 |
|
Gross deferred income tax assets |
|
| 473.9 |
|
|
| 396.6 |
|
Less: valuation allowance |
|
| (299.4 | ) |
|
| (115.4 | ) |
Total deferred income tax assets |
| $ | 174.5 |
|
| $ | 281.2 |
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Intangible assets |
| $ | 71.1 |
|
| $ | 112.2 |
|
Depreciation/amortization |
|
| 5.4 |
|
|
| 15.9 |
|
Unremitted foreign earnings |
|
| 20.5 |
|
|
| 5.5 |
|
Other |
|
| 7.7 |
|
|
| 7.7 |
|
Total deferred income tax liabilities |
|
| 104.7 |
|
|
| 141.3 |
|
Total net deferred tax assets |
| $ | 69.8 |
|
| $ | 139.9 |
|
December 31, | ||||||||
2020 | 2019 | |||||||
(in millions) | ||||||||
Deferred income tax assets: | ||||||||
Accruals not currently deductible | $ | 92.6 | $ | 80.2 | ||||
Tax loss and credit carryforwards of certain foreign subsidiaries | 128.3 | 103.6 | ||||||
Tax loss and domestic tax credit carryforwards | 208.7 | 215.2 | ||||||
Deferred compensation plan | 39.6 | 40.9 | ||||||
Deferred interest expense | 67.4 | 35.5 | ||||||
Accrued vacation | 5.9 | 5.5 | ||||||
Inventory reserve | 5.5 | 4.7 | ||||||
Operating lease liabilities | 36.6 | 21.5 | ||||||
Other | 6.6 | 6.0 | ||||||
Gross deferred income tax assets | 591.2 | 513.1 | ||||||
Less: valuation allowance | (390.8 | ) | (330.3 | ) | ||||
Total deferred income tax assets | $ | 200.4 | $ | 182.8 | ||||
Deferred income tax liabilities: | ||||||||
Intangible assets | $ | 71.2 | $ | 71.1 | ||||
Depreciation/amortization | 2.7 | 3.7 | ||||||
Unremitted foreign earnings | 14.9 | 22.7 | ||||||
Operating lease assets | 32.9 | 18.0 | ||||||
Other | 22.0 | 9.4 | ||||||
Total deferred income tax liabilities | 143.7 | 124.9 | ||||||
Total net deferred tax assets | $ | 56.7 | $ | 57.9 | ||||
20172020 and 20162019 were $137.6 $128.3million and $115.1$103.6 million, respectively. If unused, tax loss and credit carryforwards of certain foreign subsidiaries of $70.720182021 and 20272037 and $66.9$25.6 million can be carried forward indefinitely. U.S.
For U.S. foreign tax credit purposes, the Company incurred overall domestic losses in 2017 and 2016 which limited the Company’s ability to claim foreign tax credits. In future taxable years as domestic source income is generated, no less than 50% of such income will be reclassified as foreign source income as allowed and will increase the Company’s foreign tax credit limitation, thereby enabling the use of additional foreign tax credits. The Company believes it is more likely than not that $31.4 million of foreign tax credits, resulting from the overall domestic loss, will be utilized based on the Company’s current interpretation of the Act. As described below, the Company continues to analyze the Act and related information, and accordingly the Company may record additional provisional amounts or adjustments in future periods.
2017,2020, the Company’s U.S. consolidated group had approximately $97.9 $147.7million of unremitted earnings that were permanently reinvested relating to certain foreign subsidiaries. In addition, asAs of December 31, 2017,2020, Herbalife Nutrition Ltd. had approximately $2.4 $2.6billion of permanently reinvested unremitted earnings relating to its operating subsidiaries. As a result of the Company’s decision to invest in the China Growth and
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
|
| (In millions) |
| |||||||||
Tax expense at United States statutory rate |
| $ | 164.9 |
|
| $ | 127.7 |
|
| $ | 170.2 |
|
Increase (decrease) in tax resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Differences between U.S. and foreign tax rates on foreign income, including withholding taxes |
|
| (42.7 | ) |
|
| (16.6 | ) |
|
| 203.1 |
|
U.S. tax (benefit) on foreign income net of foreign tax credits |
|
| (22.9 | ) |
|
| (10.2 | ) |
|
| (23.9 | ) |
(Decrease) increase in valuation allowances |
|
| 183.7 |
|
|
| (5.6 | ) |
|
| (205.6 | ) |
State taxes, net of federal benefit |
|
| 1.9 |
|
|
| 0.3 |
|
|
| 1.7 |
|
Unrecognized tax benefits |
|
| (4.0 | ) |
|
| 5.3 |
|
|
| 10.1 |
|
Excess tax benefits on equity awards |
|
| (31.1 | ) |
|
| — |
|
|
| — |
|
Other |
|
| 7.5 |
|
|
| 3.8 |
|
|
| (8.3 | ) |
Total |
| $ | 257.3 |
|
| $ | 104.7 |
|
| $ | 147.3 |
|
Year Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
(in millions) | ||||||||||||
Tax expense at United States statutory rate | $ | 108.4 | $ | 94.8 | $ | 97.4 | ||||||
Increase (decrease) in tax resulting from: | ||||||||||||
Differences between U.S. and foreign tax rates on foreign income, including withholding taxes | (11.2 | ) | 40.9 | 62.0 | ||||||||
U.S. tax (benefit) on foreign income, net of foreign tax credits | (20.5 | ) | (10.1 | ) | (0.8 | ) | ||||||
Increase in valuation allowances | 60.6 | 11.4 | 52.7 | |||||||||
State taxes, net of federal benefit | 5.2 | 3.1 | (1.5 | ) | ||||||||
Unrecognized tax benefits | 3.9 | (6.9 | ) | 6.9 | ||||||||
Unremitted earnings | (8.3 | ) | 10.0 | (9.2 | ) | |||||||
Excess tax benefits on equity awards | (3.1 | ) | (5.8 | ) | (53.1 | ) | ||||||
Other | 8.8 | 3.0 | 13.2 | |||||||||
Total | $ | 143.8 | $ | 140.4 | $ | 167.6 | ||||||
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Beginning balance of unrecognized tax benefits |
| $ | 50.5 |
|
| $ | 49.4 |
|
| $ | 40.5 |
|
Additions for current year tax positions |
|
| 13.0 |
|
|
| 9.3 |
|
|
| 11.3 |
|
Additions for prior year tax positions |
|
| 3.6 |
|
|
| 2.0 |
|
|
| 2.5 |
|
Reductions for prior year tax positions |
|
| (6.0 | ) |
|
| (4.7 | ) |
|
| (0.6 | ) |
Reductions for audit settlements |
|
| (7.1 | ) |
|
| — |
|
|
| (0.1 | ) |
Reductions for the expiration of statutes of limitation |
|
| (6.2 | ) |
|
| (4.2 | ) |
|
| (2.8 | ) |
Changes due to foreign currency translation adjustments |
|
| 2.8 |
|
|
| (1.3 | ) |
|
| (1.4 | ) |
Ending balance of unrecognized tax benefits (excluding interest and penalties) |
|
| 50.6 |
|
|
| 50.5 |
|
|
| 49.4 |
|
Interest and penalties associated with unrecognized tax benefits |
|
| 11.4 |
|
|
| 11.5 |
|
|
| 8.6 |
|
Ending balance of unrecognized tax benefits (including interest and penalties) |
| $ | 62.0 |
|
| $ | 62.0 |
|
| $ | 58.0 |
|
Year Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
(in millions) | ||||||||||||
Beginning balance of unrecognized tax benefits | $ | 48.9 | $ | 53.5 | $ | 50.6 | ||||||
Additions for current year tax positions | 9.7 | 8.4 | 12.8 | |||||||||
Additions for prior year tax positions | 1.3 | 6.1 | 0.7 | |||||||||
Reductions for prior year tax positions | (0.6 | ) | (15.4 | ) | (2.1 | ) | ||||||
Reductions for audit settlements | (4.7 | ) | (0.1 | ) | (0.5 | ) | ||||||
Reductions for the expiration of statutes of limitations | (2.1 | ) | (3.6 | ) | (4.8 | ) | ||||||
Changes due to foreign currency translation adjustments | 0.2 | — | (3.2 | ) | ||||||||
Ending balance of unrecognized tax benefits (excluding interest and penalties) | 52.7 | 48.9 | 53.5 | |||||||||
Interest and penalties associated with unrecognized tax benefits | 13.2 | 11.0 | 11.7 | |||||||||
Ending balance of unrecognized tax benefits (including interest and penalties) | $ | 65.9 | $ | 59.9 | $ | 65.2 | ||||||
2015.
Fair Value Measurements at Reporting Date Using
|
| Derivative Balance Sheet Location |
| Significant Other Observable Inputs (Level 2) Fair Value at December 31, 2017 |
|
| Significant Other Observable Inputs (Level 2) Fair Value at December 31, 2016 |
| ||
|
|
|
| (In millions) |
| |||||
ASSETS: |
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges |
| Prepaid expenses and other current assets |
| $ | 2.9 |
|
| $ | 4.6 |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts |
| Prepaid expenses and other current assets |
|
| 2.9 |
|
|
| 2.8 |
|
|
|
|
| $ | 5.8 |
|
| $ | 7.4 |
|
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges |
| Other current liabilities |
| $ | 4.0 |
|
| $ | — |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts |
| Other current liabilities |
|
| 2.6 |
|
|
| 3.5 |
|
|
|
|
| $ | 6.6 |
|
| $ | 3.5 |
|
Significant Other Observable Inputs (Level 2) Fair Value as of December 31, 2020 | Significant Other Observable Inputs (Level 2) Fair Value as of December 31, 2019 | Balance Sheet Location | ||||||||||
(in millions) | ||||||||||||
ASSETS: | ||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges | $ | — | $ | 0.1 | Prepaid expenses and other current assets | |||||||
Derivatives not designated as hedging instruments: | ||||||||||||
Foreign exchange currency contracts | 9.4 | 3.1 | Prepaid expenses and other current assets | |||||||||
$ | 9.4 | $ | 3.2 | |||||||||
LIABILITIES: | ||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges | $ | 3.9 | $ | 1.9 | Other current liabilities | |||||||
Interest rate swaps | 1.0 | — | Other current liabilities | |||||||||
Derivatives not designated as hedging instruments: | ||||||||||||
Foreign exchange currency contracts | 3.2 | 1.1 | Other current liabilities | |||||||||
$ | 8.1 | $ | 3.0 | |||||||||
Offsetting of Derivative Assets Gross Amounts of Recognized Assets Gross Amounts Offset in the Balance Sheet Net Amounts of Assets Presented in the Balance Sheet (In millions) December 31, 2017 Foreign exchange currency contracts $ 5.8 $ (4.3 ) $ 1.5 Total $ 5.8 $ (4.3 ) $ 1.5 December 31, 2016 Foreign exchange currency contracts $ 7.4 $ (3.0 ) $ 4.4 Total $ 7.4 $ (3.0 ) $ 4.4 Offsetting of Derivative Liabilities Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Balance Sheet Net Amounts of Liabilities Presented in the Balance Sheet (In millions) December 31, 2017 Foreign exchange currency contracts $ 6.6 $ (4.3 ) $ 2.3 Total $ 6.6 $ (4.3 ) $ 2.3 December 31, 2016 Foreign exchange currency contracts $ 3.5 $ (3.0 ) $ 0.5 Total $ 3.5 $ (3.0 ) $ 0.5 December 31, 2017 2016 (In millions) Accrued compensation $ 117.3 $ 125.8 Accrued service fees to China independent service providers 58.7 46.3 Accrued advertising, events, and promotion expenses 46.3 48.4 Advance sales deposits 65.2 50.1 Income taxes payable 25.7 42.0 Other accrued liabilities 145.7 142.2 Total $ 458.9 $ 454.8 2017 2016 (In millions, except per share data) First Quarter Ended March 31 Net sales $ 1,102.1 $ 1,119.6 Gross profit 897.5 906.5 Net income 85.2 95.8 Earnings per share Basic $ 1.03 $ 1.16 Diluted $ 0.98 $ 1.12 Second Quarter Ended June 30 Net sales $ 1,146.9 $ 1,201.8 Gross profit 928.1 965.5 Net income (loss) 137.6 (22.9 ) Earnings (loss) per share Basic $ 1.69 $ (0.28 ) Diluted $ 1.61 $ (0.28 ) Third Quarter Ended September 30 Net sales $ 1,085.4 $ 1,122.0 Gross profit 870.0 912.9 Net income 54.5 87.7 Earnings per share Basic $ 0.69 $ 1.06 Diluted $ 0.66 $ 1.01 Fourth Quarter Ended December 31(1) Net sales $ 1,093.3 $ 1,045.0 Gross profit 883.5 848.9 Net (loss) income (63.4 ) 99.4 (Loss) Earnings per share Basic $ (0.87 ) $ 1.19 Diluted $ (0.87 ) $ 1.16 (1) Director February Richard H. Carmona Director February Director February Director February Michael Montelongo Director February Maria Otero Director February John Tartol20172020 and December 31, 2016:2019:
of Recognized
Assets
Offset in the
Balance Sheet
Assets Presented
in the Balance
Sheet $ 9.4 $ (1.8 ) $ 7.6 $ 9.4 $ (1.8 ) $ 7.6 $ 3.2 $ (1.4 ) $ 1.8 $ 3.2 $ (1.4 ) $ 1.8
of Recognized
Liabilities
Offset in the
Balance Sheet
Liabilities
Presented in the
Balance Sheet $ 7.1 $ (1.8 ) $ 5.3 1.0 — 1.0 $ 8.1 $ (1.8 ) $ 6.3 $ 3.0 $ (1.4 ) $ 1.6 $ 3.0 $ (1.4 ) $ 1.6 20172020 and December 31, 2016,2019, all of the Company’s derivatives were subject to master netting arrangements and no collateralization was required for the Company’s derivative assets and derivative liabilities.includesincluded deferred compensation plan assets of $33.6$43.8 million and $30.6$38.9 million and deferred tax assets of $77.5 $96.0million and $155.2$79.3 million as of December 31, 20172020 and 2016,2019, respectively.consistconsisted of the following: $ 163.8 $ 121.6 63.3 62.2 67.6 48.5 35.5 37.4 68.5 64.3 23.0 17.0 235.8 213.6 $ 657.5 $ 564.6 includesincluded deferred compensation plan liabilities of $58.1$72.3 million and $50.0$62.4 million and deferred income tax liabilities of $7.8 $39.3million and $15.3$21.4 million as of December 31, 20172020 and 2016,2019, respectively. See Note 6, to the consolidated financial statements for a further description of the Company’s deferred compensation plan assets and liabilities.During2018,3, 2021, the Company entered into a stock purchase agreement with Mr. Carl C. Icahn and certain of his affiliates (collectively, the “Icahn Parties”) pursuant to which the Company agreed to purchase from certain of the Icahn Parties an indirect wholly owned subsidiaryaggregate of 12,486,993 common shares of the Company repurchased 4,200at a price per share of $48.05, the closing price of a share on the New York Stock Exchange on December 31, 2020, the last trading day prior to the execution of the purchase agreement, or an aggregate purchase price of approximately $600 million. The Company funded the transaction from cash on hand and approximately $150 million in borrowings under its revolving credit facility. The transaction closed on January 7, 2021.aggregate consideration of approximately $0.3 million through open market purchasesborrowings under the Company’s $1.5 billion share repurchase program. These repurchases were effected pursuant2018 Term Loan B from either the eurocurrency rate plus a margin of 2.75% or the base rate plus a margin of 1.75% to Rule 10b5-1 trading plans. Seeeither the eurocurrency rate plus a margin of 2.50% or the base rate plus a margin of 1.50%. The maturity date remains unchanged and the outstanding borrowings under the 2018 Term Loan B still remain due in accordance with the provisions of the 2018 Credit Facility as described further in Note 8, Shareholders’ (Deficit) Equity, for a discussion5,
per share amounts) $ 1,262.4 $ 1,172.2 1,016.7 930.6 45.6 96.3 $ 0.33 $ 0.70 $ 0.32 $ 0.66 $ 1,346.9 $ 1,240.1 1,074.1 996.9 115.1 76.5 $ 0.84 $ 0.56 $ 0.82 $ 0.54 $ 1,521.8 $ 1,244.5 1,199.1 1,001.1 138.1 81.5 $ 1.07 $ 0.59 $ 1.04 $ 0.58 $ 1,410.7 $ 1,220.3 1,101.3 990.5 73.8 56.7 $ 0.61 $ 0.41 $ 0.59 $ 0.40 Includes the impact of the U.S. Tax Reform enacted during the2017,2019 includes a net favorable adjustment to our unrecognized tax benefit liability of $11.4 million primarily attributable to transfer pricing matters in various foreign jurisdictions, and a legal accrual of $40 million relating to the SEC and DOJ investigations relating to the FCPA matter in China as described further in Note 12, Income Taxes7,HERBALIFE LTD.By:/s/ JOHN G. DESIMONEBy: John G. DeSimoneAlexander Amezquita 22, 201817, 2021datedates indicated.SignatureTitleDateRICHARD P. GOUDISDR. JOHN O. AGWUNOBIFebruary 17, 2021 Dr. John O. Agwunobi (Principal Executive Officer)Officer and Director)February 22, 2018Richard P. GoudisJOHN G. DESIMONEALEXANDER AMEZQUITAFebruary 17, 2021 Alexander Amezquita February 22, 2018John G. DeSimoneBOSCO CHIUJEHANGIR IRANIand PrincipalFebruary 17, 2021 Jehangir “Bobby” Irani (Principal Accounting Officer) February 22, 2018Bosco Chiu/s/ RICHARD P. BERMINGHAMDirectorFebruary 22, 2018Richard P. Bermingham/s/ PEDRO CARDOSODirectorFebruary 22, 2018Pedro Cardoso22, 2018JONATHAN CHRISTODOROALAN LEFEVRE22, 2018Jonathan ChristodoroAlan LeFevre KEITH COZZAJUAN MIGUEL MENDOZA22, 2018Keith CozzaJuan Miguel Mendoza /s/ JEFFREY T. DUNNDirectorFebruary 22, 2018Jeffrey T. Dunn/s/ HUNTER C. GARYDirectorFebruary 22, 2018Hunter C. Gary/s/ MICHAEL O. JOHNSONDirector, Executive ChairmanFebruary 22, 2018Michael O. Johnson/s/ JESSE A. LYNNDirectorFebruary 22, 2018Jesse A. Lynn22, 2018/s/ JAMES L. NELSONDirectorFebruary 22, 2018James L. Nelson22, 2018Director February 17, 2021 Margarita Paláu-Hernández 22, 2018126